Weak GDP growth, a soaring government deficit, and lack of credible plans to correct anything has led to growing concerns that the British pound could collapse — becoming less valuable than a euro.
The U.S. dollar looks like a star in comparison given higher expected GDP growth in the U.S. and more relative credibility in the government’s ability to control spending in the longer term.
While the pound/euro currently sits at 1.11, the next stop could be parity.
The Times: Douglas McWilliams, the chief executive of the Centre for Economics and Business Research (cebr), said that the British economy was walking “five yards away from the edge of the cliff” and could be toppled by an “unexpected gust”.
The pound is trading at 1.10 against the euro after hitting a low of 1.02 a year ago. However, currency markets are reflecting the expectation of a win for the Conservatives in next year’s election, raising hopes of tougher action to tackle the deficit. Any signs of Labour closing the gap ahead of the election would result in the pound plunging, according to the cebr.
“If I had to bet, I would bet on the side of parity being broken,” said Mr McWilliams, adding that there was significant downside risk for the euro as a result of the divergent economic performances of countries such as Germany and Greece.