Monday, September 1, 2008

Darling sends pound diving

Source: Evening Standard

Darling sends pound diving

Paul Waugh and Hugo Duncan

Pound graphic

The pound crashed to a record low today as the City reacted to Chancellor Alistair Darling's warning on the economy.

The markets sent sterling plunging to 81.39p to the euro, the lowest since the European currency was founded in 1999, in the first trading since Mr Darling said Britain was facing its worst squeeze for 60 years.

Combined with speculation that Gordon Brown was set to sack his Chancellor, fears that Britain was set for a longer slowdown sent the pound falling to $1.80 against the dollar, the worst in two years.

Tory leader David Cameron accused Mr Darling of triggering a "crisis of confidence" and warned that his claims about the difficulties facing the UK risked "talking the economy down".

The Prime Minister tried to reassert his authority by seizing control of Labour's economic recovery plans, including proposals to help hard-pressed homeowners and first-time buyers.

He will also use a speech to business leaders this week to contradict Mr Darling's gloomy prognosis and claim instead that Britain is set to benefit from "new business, new jobs and prosperity" as the world economy doubles in the next 20 years.

But City economists said that reports of a split between No10 and No11 Downing Street, together with fears that Mr Darling was telling the truth about the state of the downturn, were enough to send the pound plummeting.

Ian Stannard, senior currency strategist at BNP Paribas, said: "Most people believed that things were probably deteriorating faster in the UK than the Government was admitting, but the fact that we've seen the Chancellor come out and admit that things are far worse have put sterling under pressure."

Simon Derrick, chief currency strategist at Bank of New York Mellon, said: "The last thing you want to hear is there is a split at the top between the Prime Minister and the guy running the economy. It does not fill investors with a great deal of confidence so I don't think it's surprising sterling has collapsed."

Sterling also weakened ahead of Thursday's interest rate decision. It is widely expected that the Bank of England will keep rates at five per cent for this month after inflation hit a 16-year high of 4.4 per cent.

Mr Cameron rounded on Mr Darling's "60 years" comments, telling Radio 4's Today programme: "I think it's extraordinary that the Chancellor said it because the Chancellor of the Exchequer has got to think not only, 'I must tell the truth at all times' but also, 'I must use my words carefully so that I don't create a situation that's even worse'...

More: Evening Standard

1 comment:

Panos Konstantinidis said...

And the worst is yet to come.