Monday, September 01, 2008

If Brown is Right the Pound Should be Soaring

This is a question I have asked before, but have still received no satisfactory answer.

Why, if our economy is in stronger shape than our main competitors (as the PM constantly reminds us), has our currency lost 14% of its value against the currencies of those competitors in the last fifteen months? It's now at its lowest point ever against the euro, and has plumetted to $1.79 - twenty three cents lower than a year ago.

If our economy is in such strong shape, surely the Pound should be strengthening?

And why do people constanstly talk about it all being the fault of the US economy, when in the last quarter their economy grew by 3%. Ours remains static.


javelin said...

You're right - the economy is weakening. 2 year forward FX rate is 1.73 so the market is bettng things are going to get worse.

graham said...

Well, show me a news reporter who would put that to him, or Darling for that matter. Have we got the dumbest media around or the most compliant?

Chris Paul said...

There is no contradiction between the idea that the UK economy is robust vs external forces and such currency changes. How we doing versus the dollar? Did you report the moments over the last 11-12 years when the pound was rising or other nations facing flatter, non-, or negative growth?

graybo said...

Off topic: BBC News reporting that Palin has admitted that her 17 year old daughter, unmarried, is pregnant. That will go down a storm with the right-wing voters. Not.

Anonymous said...

We're not talking about the last decade or so, but what status is claimed for the economy now by the government and how it differs from the reality.

Anonymous said...


I'm sure this news will make the good ole boys run into the arms of Obama.

Anonymous said...

"when in the last quarter their economy grew by 3%"

No it didn't Iain.

The US Growth last quarter was 0.8% it was their year on year growth that hit 3.3%. You can't really make a direct comparison between Yearly US growth and Quarterly UK growth.

Its annual US 3.3% vs UK 1.8% (i'd guess will be revised down) and Quarterly US 0.8% and UK 0.0%

I grant you is higher, but not as high as you were making out.

graybo said...

anon 6.11pm

That wasn't my suggestion. However, given that and the bridge-to-nowhere gaffe, I can't help thinking that McCain has picked the wrong candidate if he hoped that it would draw Clinton-voting women away from Obama. Remember that the American left is much more conservative than the British left. As for the American right...

In any case, this is probably the wrong place to be discussing this (I now regret mentioning it here). Perhaps Iain will make a post on the subject or provide an open thread.

Anonymous said...

Iain, those US GDP data are crooked.

But you're right, the UK economy is in a mess. Arguably a lot of the economic expansion was a mirage, it was just paid for by debt. Like a spiv living beyond his means, we've spent the past decade putting the bills on the credit card, racking up record government and personal debt and now it's time to pay the bills.

Just as people can be prosecuted for mis-selling financial products, maybe some naive homeowners should think about prosecuting Brown for deception?

Anonymous said...


I really don't think this is anything major, so nothing to discuss.

Different Duncan said...

The UK tends to underestimate its growth, whereas the US tend to overestimate.

Your point about the weak pound, however, is a good question that I doubt can be answered.

Common Sense said...


You socialists really are a queer bunch; why on earth are you all getting so worked up about a teenage mother? Isn't that the natural order that you all believe in?

If you think it is something we 'right wingers' will disapprove of, then that only shows how deluded you are.

What we care about is that Obahama is a racist, who consorts with terrorists, has an unpatriotic wife, has no executive or foreign policy experience, and has economic policies that will do untold harm to the UK if not the US. Subjectively, he is nothing more that a stuffed suit, whose got a good wordsmith behind him.

Hillary supporters are quite likely to vote McCain now, hoping that she will get her chance next time around. If Obahama gets in, she won't get a chance for a long time - if at all!!

Now what was that about a teenage pregnancy?

PS Yes Iain you are right it should be. But then Brown is leader of the deluded ones.

Anonymous said...

Iain, in May 1997 the pound was worth $1.63.

What does that say about the state of the economy when the last Conservative government bowed out.

Wrinkled Weasel said...

where us Cityunslicker when you need him?

Wrinkled Weasel said...

sorry about the spelling, I have had a few ales.

Anonymous said...

The answer to your question is, Gordon Brown is a liar and has been the most incompetent manager of the UK economy since the last labour government.

Quite why the opposition fails to ever challenge him over this is very odd. If the news pundits are correct then Gordon is about to rescue those who gave and accepted quite stupid house loans by way of taxpayers money and Dave seems to be going along with this.

Please Please give the UK voters a proper opposition party as an alternative to New Labour, New Con will NOT do.

strapworld said...

anonymous 7.04. Yes and just before the Wilson Government ruined everything!the pound stood at $2.50 = £1

We can all play with tales of yesterday. The one tale you can never erase is your Labour Parties total incompetence with the United Kingdom Economy.

Where is the Margaret Thatcher to take us back to sane economics? Cameron certainly is not the man. BRING PALIN over here.

as for graybo's nonsense. How many teenage pregnancies out of wedlock are there in the USofA? and the UK?

What fool of a politician would try to make political capital out of this non news.?

Grow up for goodness sake!

verity's lovechild said...

That Palin's daughter didn't abort invites flattering comparisons with Obama's own statements about what he'd want for his own daughters in a similar situation.

Man in a Shed said...

September 01, 2008 6:04 PM , Anonymous graham - the answer is we have a very biased left wing media in the BBC. Just listen to the R4 interview of David Cameron this morning as an example.

Man in a Shed said...

PS Lefty's who are enjoying Palin's daughter's pregnancy do any of you know if Obama was born a US Citizen -it appears to be less than clear ....

Those of you who have a copy of the US Constitution will know what this means.

old codger said...

Doesn't a weak pound favour exporters, or something? Or so I seem to remember learning at school, rather a long time ago. Of course we may not have anything left that's worth exporting these days.

Anonymous said...

Man in a Shed said...
"do any of you know if Obama was born a US Citizen -it appears to be less than clear ...."

The US authorities must have accepted that he was born a US citizen, otherwise he would not be eligible to run for the Presidency.

Anonymous said...

I seem to remember John Redwood arguing that the pound was overvalued and demanding that Brown (who was Chancellor at the time) should do something about it.

lucky said...


There are many well taken points among the comments, not least about the questionability of seeing correlations that do not exist in reality and the unreliability of government growth figures - especially susceptible to massage at a time of reckoning such as now.

I think you would be more enlightened if you ceased seeking 'fundamental' reasons for currency movements and instead looked at a long-term chart.

The trend of GBP versus most currencies over the long-term has been unequivocally down. And that's even against USD, a currency that has itself lost over 95% of its value since the inception of the Fed in 1913.

Against that longer-term perspective, any upward bounce we have seen over the past few months/years can pretty well be considered a correction or pause in the larger downtrend.

You would be better served looking to psychology and technical analysis if you want to understand patterns in that trend.

Daniel said...

Iain. you should know, but clearly do not, that your figures and comparisons are wrong. this blog is not the place to give you a basic economics lesson - you will need to go back to school for that - but perhaps you might consider that there are a number of issues here.

When you refer to GDP growth - the last quarter in the US was 0.8%, in the UK it was 0%. France, Italy and Germany and Spain all suffered negative economic growth in the last quarter (minus 0.2-0.%%).

It might be worth noting that 4 of these 6 countries have a right wing Government. But that is an irrelevance. Each western economy has adopted broadly similar, free market, light touch regulatory, economic policies - and each has suffered.

In terms of currency fluctuations - the US dollar has been very weak against Sterling and the Euro for several years, (something that you did not comment on as a sign of the inadequacy of Bush's economic policies when the dollar was weak). Speculators have recently decided to bet against the Pound, it has probably been over valued for some time. But the pound was well below its current level in 1997. It is absurd frankly to use the current level of the pound as some indication of have a more general malaise in the British Economy. But it is clear that the UK economy is facing a serious downturn, as are the other countries.

The falling pound is a huge opportunity for exporters - (it makes our goods cheaper) and whilst there is a small risk of imported inflation - that might be counterbalanced by the fall in commodity prices over the last month or so.

So in a nutshell - the UK economy is weakening, as is the US economy, neither nearly as bad as Germany, France or Italy - and all of those are right wing governments.

Only an idiot with no understanding of economics would deduce that the figures mean right wing euro zone governments are to blame and only an idiot would suggest Gordon Browns government is singularly to blame.

btw I can recommend New College if you want to go back to college to get some economic classes. But i fear you would struggle with the entrance exam

Anonymous said...

From the 1950s onward the BBC once a month would report the Trade Gap, always negative and then say it had been adjusted for invisible earnings etc. They never say how much we exported and how much we imported so we never really knew what the real picture was. If we have bought more than we have sold every year for 50 years then I would say we are bankrupt. Can anybody help sort this out?
Freedom to Prosper

Anonymous said...

PS I can remember the mid eighties when they were talking about Dollar parity. One dollar equals one pound.

electro-kevin said...

And why are we allowing Nu Lab to get away with calling this a 'credit crunch' - this globalises the problem thus letting Brown off the hook.

It's 'pay back' pure and simple.

graybo said...

Blimey - some of the commenters here really do go off on one when you bring up a subject, don't they? Whatever happened to rational discussion? Is it always just name-calling from certain people here?

Firstly, I'm not a socialist. I voted Conservative at the last election, and at most previous elections since I turned 18 many many moons ago. But that's not the issue that I raised.

My point is that I am concerned that McCain has not picked the right person for the ticket. Why am I concerned? Because I think that Obama is a strong candidate and the Republicans need a strong response if they are to defeat him. Remember that a large part of the Republican constituency is the religious right, and I can't imagine that they will be impressed by the Palin pregnancy - they prefer abstention after all. The way that the Republicans handle this issue will impact on those female voters that McCain is clearly trying to woo away from the Democrats. If you take the centre-ground women and the religious right, the two groups likely to take most notice of this issue, they account for a significant portion of the vote - and those two groups may have different views about it. They may also have different views on Palin's opinions of the NRA, her flip-flopping on the bridge-to-nowhere and her stance on abortion.

Anyway, apologies once again Iain for bringing this subject into this thread.

briggs said...

Obama himself has said to lay off the Palin family, referring to the fact that he himself was the son of a single mother. He obviously does not see any political capital in this at all.

The demographic of the voters who edged it for Bush in the battleground states, was to the surprise of some commentators in the UK ,quite young. I do think this will be an issue for them, reflecting as it does what they see all around them on a daily basis.

As McCain has said regarding this, "Life happens." I think this will be the attitude of most.

briggs said...

Sorry, that should obviously read,

"I do not think this will be an issue for them,"

Scallywag said...

Never mind the US Dollar exchange rate. Check out the Euro for a real shock...

Scallywag said...

Never mind the US Dollar exchange rate. Check out the Euro for a real shock...

joe said...

Exchange rates are in essence a measure of confidence- basically they are controlled by flows of capital, which goes where it feels more confident in the future (bet on what you think is going up next, at least relatively). Thus last quarter's data is only of marginal relevance- more important is that there start to be some signs that the US may be bottoming (housing transactions starting to pick up for example, and stock of unsold homes falling) and many signs that UK still going down fast (eg house prices now down 10% on a year ago- but they were still going up then; if you take monthly numbers for the last 7/8 months, house prices will probably be down around 20% over 2008 as a whole).

The main point is that what the market is looking at is not the last few months or year, but the next few years.

Of course in the last few years this helped the pound and Euro (as the US was declining in relative terms, from an exceptionally strong economy to average or maybe worse). It is still helping the Euro as the zone has not been hit as badly as US and UK- and the ECB has done a pretty good job of policy and people have gained confidence in it.

Not helping here is an unpopular and ruderless government, and then add a Chancellor making ludicrous statements on the economy (things are bad but we are not in need of an IMF bailout, unlike the last Labour government)- this is very bad for confidence in the leadership of the country, hence hit exchange rate badly.

Anonymous said...

Nobody has pointed out that on the quiet we are an oil producer. Oil is traded in Dollars. So we get more when we sell it BUT pay more when we buy it. At 2 Dollars to the pound oil was cheap. Should we throw our lot in with the USA and adopt the Dollar?
Awaits torrent of abuse.
Freedom to Prosper

Ken said...

@Beyond Newlabour & Daniel

You are both wrong about the headline number that Iain quotes and some of the numbers you quote.

The quarter-on-quarter annualised rate (compare Q2 vs Q1 x 4 - to annualise) growth rate for the US is 3.3%. This is the headline number published by the BEA.

The year-on-year rate for Q2 2008 vs Q2 2007 is 2.2% for the USA. (see Table 8 page 10)

It is normal practice to annualise quarterly numbers, although they tend to be somewhat volatile.

Q2 vs Q1 (2008) Not annualised.

UK 0%
Spain +0.1%
Italy -0.3%
France -0.3%
Germany -0.5%
US +0.8%,39140985&_dad=portal&_schema=PORTAL&screen=detailref&language=en&product=EU_shorties&root=EU_shorties/shorties/euro_na/na_gdp/na010q1

Q2 2008 vs Q2 2007

UK (1.4%)
France 1.6%
Germany 3.1%
Italy (0%)
US (2.2%),39140985&_dad=portal&_schema=PORTAL&screen=detailref&language=en&product=EU_shorties&root=EU_shorties/shorties/euro_na/na_gdp/na010q4

Numbers in () are taken from national stats agencies and not from eurostat.

Why do we use QoQ annualised and YoY numbers? Because if the seasonal adjustment works QoQ annualised gives us a clearer picture of the very short term trend, whereas the YoY number is not reliant on seasonal adjustment, but it is a comparison with 12 months before.

Why is seasonal adjustment a big thing? Basically because quarterly GDP swings around so much. On raw numbers Q1 is 2% lower than Q4 in the US every year.

I happen to think that the Euro will be in trouble at some point in the next year. Anyway, currencies do reflect some economic fundamentals some of the time.

Anonymous said...


The basic point was that you can't compare an annual growth rate with a quarterly one on any measure.

Ken said...

@Beyond NewLabour

Erm. Iain said the UK remained static (0%) and the US was 3%. These are the QoQ annualised numbers for Q2 2008 - this comparison is like for like. YoY US growth was 2.2%, not 3.3%. (I went and checked the underlying BEA numbers) 3.3% is 0.8(and a bit)% x 4 (QoQ annualised).

Anonymous said...

Man in a Shed

Obama was undoubtedly born a US citizen.

A (British) friend married an American woman. They lived over here and their child was born here. The baby travelled to the States several times to see relatives, on a UK passport. When my friend was offered a job in the US, the US embassy here took a very dim view of the fact that the child had not been travelling on a US passport from birth, as she was a US citizen.

Obama's mother is a US citizen, so he was from the moment of birth.

Casual Observer said...

Brown lies like a stinking fish. That's why...

Anonymous said...

Anonymous said...
"Obama was undoubtedly born a US citizen.
Obama's mother is a US citizen, so he was from the moment of birth."

Why was there any doubt?

Obama was born in the U.S. and his mother was a U.S. citizen.

Ian Deans said...

I'm surprised that nobody with even a little economic training has commented here. I'm far from an expert, but I as far as I understand, exchange rates are basically deteremined by supply and demand. The money supply is essentially finite, so the exchange rates demonstate the demand for your currency.

But strength of the economy does not necessarily equate to demand for your currency - just as a company with solid earnings and performance might not command a high price on the stock exchange.

Also consider that holding a sum of currency (say a thousand pounds in a savings account) is an investment. As an investment, you have to consider the alternatives - could you make a greater return by investing in something else, such as a stock or another asset? You might find the alternatives to be more attractive than the interest rate offered by your bank, in which case you'd shift your investment from currency into something else. When you do this, you're reducing demand for currency because you don't want to hold that thousand pounds in currency anymore; you'd rather hold it in an alternative.

If everyone found alternatives that represented better value (even if the interest rate on currency was not poor), demand for the pound would plummet and so would its value. In no way would this demonstrate that the economy was experiencing problems - in fact, it would be a reflection that the economy generally was so strong.

I know this is poorly expressed but hopefully you can see that currency and economic strength aren't directly related, and judging one by the other isn't necessarily a wise move.