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Sterling shunned

Robert Peston | 17:04 UK time, Friday, 24 October 2008

I've been desperately scrambling around for something positive to say today - and the best I can come up with is that the remarkable fall we've seen in the value of sterling today (again) shouldn't make the Bank of England so anxious about importing inflation that it postpones the widely anticipated further cuts in interest rates.

The Scarborough Evening News is responsible for this insight (if such it proves to be), because it contains some striking remarks by the Deputy Governor of the Bank of England, Charlie Bean:

"This is a once-in-a-lifetime crisis and possibly the largest financial crisis of its kind in human history" said Bean. "In terms of the impact on the real economy we are still in early days."

Those do not seem to me to be the views of an economist whose main anxiety is the outlook for inflation. They're the words of a central banker worried about the possibility of a deep dark slump.

IBank of Englandf the Bank of England doesn't cut a further ½% off the policy rate - either at its next meeting or in another round of global cuts in co-ordination with other central banks - I'll be somewhat surprised.

Also, some of sterling's weakness can be seen as the corollary of dollar strength, rather than a wholesale decision by international investors to shun sterling assets.

The dollar and the yen have both risen today as the last vestiges of the years of the carry trade - in which investors borrowed cheaply in yen and dollars to invest in emerging economies - is unwound.

Hedge funds and other institutional investors are liquidating any assets they perceive as even mildly risky, especially in eastern Europe, Russia and South America (see my note on this yesterday, "Now there are runs on countries").

And such liquidation inevitably leads to purchases of the US and Japanese currencies.

But just because part of sterling's weakness reflects a flight to the safety of the dollar and yen, there's no real comfort there for us.

Sterling today hit a record low against the euro and is at a 12-year low on a trade-weighted basis.

Why don't international investors love our currency any more?

You know where the smell is coming from:

1) our huge and tumbling housing and property markets;

2) a banking sector massively dependent on flighty wholesale funding from overseas;

3) a fast-growing budget deficit that has to be funded by massive sales of sterling government bonds, at a time when central banks, sovereign wealth funds and institutional investors are suffering a squeeze on cash available for such investment (Michael Saunders of Citigroup estimates that the Treasury will have to flog around £100bn net of gilts every year for the next three years - which, as a percentage of GDP, takes us back to the horrible deficit years of the early 1990s);

4) oh yes, and we appear to be in recession.

Now the capital flight out of the UK is mild compared with the currency crisis hitting Eastern Europe and Russia, which may well be translated into severe economic difficulties.

But all that means is that we shouldn't expect vast numbers of the recent émigrés from those countries to return home when the job market tightens here.

If Poles have a choice between being unemployed here or in their homeland, it's not obvious they'll all decide to repatriate.

But while we are on the subject of the vulnerability of Eastern European, Russian and South American economies, here's something positive to say about our banks: their loans to these regions are limited.

If there are big loans losses to be suffered by banks exposed to emerging economies, disproportionate pain will be suffered by continental banks.


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  • Comment number 1.

    Why are you going on about the Poles going home Robert, we let Poland into the EEC, whether we like it or not they have a right to be here. It is not repatriation. Its a ridiculous comment.

  • Comment number 2.

    We're dooooomed!

    It's Friday evening, can't we relax until Monday at least?

  • Comment number 3.

    Forget the positive, looks like you're scrambling around to say anything. It's funny isn't it, recently you've seemed to become mortal again. Where have all the scoops gone?

  • Comment number 4.

    We should all now see the hollowness of Gordon Brown denying responsibility for this crisis on the grounds that it is a global issue. This may be the case but it also seems to be the case that we are perceived to be the worst of the rich countries as the plummeting value of sterling demonstrates. Oh and will the Government now recalculate the economic benefits of immigration when huge numbers of Eastern Europeans start claiming benefits?

  • Comment number 5.

    The value of sterling is, for me, quite worrying as I really no longer understand why it has fallen so much. The downturn in the economy of the UK is mirrored by other countries worldwide. Therefore, why do we appear to be paying the price?

    Over the last 2 years the US dollar has fallen in line with increasing oil prices and poor economic data. Both of those factors appear to still be in play - especially after OPEC's decision to cut production. Will we now see the dollar start to fall?

    If our exports really do have the chance to increase then the fall may have some benefits. However, in a worldwide crisis I really don't see that happening.

    Neither do I see any great benefit in slashing interest rates. I don't hear people complaining that the cost of finance is too high. The real problem is the risk and availability.

  • Comment number 6.

    Who will buy UK Treasury debt? Given the level of borrowings and the effect of other financial instruments that have not yet worked themselves out of the system! How long before the credit rating of the UK is downgraded?

  • Comment number 7.

    Hi Robert

    Not sure of how to get hold of you so I think this is my best bet. I am a student in Oxford doing my masters in business. I am looking to do my dissertation on how blogs influence peoples perceptions of the markets. I would like to know if I could ask you some questions regarding the issue. If this is not the right channel, could some one please push me in the right direction.

    Thanks so much for your time and looking forward to hearing from you.


  • Comment number 8.

    Robert, aren't you missing another source of the 'smell', as you put it? Simply that there is an expectation that the BoE is going to gradually and continually cut interest rates over the few months encouraging institutional investors to pull out of sterling for those markets offering greater central bank interest rates?

    It is not as glamorously depressing, I'm afraid, but may be the real source.

  • Comment number 9.

    Time to sign up for the Euro - we cannot afford to delay any longer.

  • Comment number 10.

    It is good to see that Mr Preston is trying to find something positive to say.

    Sterling interest rates should be cut immediately over the weekend and it be a political decision that is fully justified. a half a point at least.

    The reason sterling is so weak is more that it is sterling being hit not the dollar being bought - witness today's sterling dollar rate volitility and sterlings downward trend across currencies. The economy is in bad shape and the currency investors know the truth and are voting with their money

    Robert has put his finger on some of the causes, but still does not seem able to admit that this government has spent excessively and placed the UK in a much weaker position than most western economies

  • Comment number 11.

    We know where it will end. 0% interest rates. The Pound is a currency in dire straights. It has no value to give it strength, and value here means a solid maufacturing or exporting or growing economy to back it up.

  • Comment number 12.

    Should i start buying US $????
    any advice are welcome!

  • Comment number 13.

    it'll be a hoot if another of those Bin Laden videos is broadcast tonight with the old boy wagging his finger at us..


  • Comment number 14.

    Hey Robert,
    I want to buy a flat in NY, should i need to convert my pounds into american dollars or should i wait?
    thanks in advanced for the time and help.

  • Comment number 15.

    I thought the missive from Scarborough was a spoof as Mr Bean is a common bloggers nickname for Mr Brown. Still it is reassuring to know we have now got two Mr Beans on the Job with the able assistance of Lord Mandelson. I think its a dream team and feel wholly confident in them to turn things around. Their first month has only caused a 25% fall in the FTSE. I will leave my fate in their hands and that of my expert financial whizz at Friends Provident as I am sure he will not get caught holding any lemons will he? Well he's only cost me £35K so far this month and at that rate he won't have any beans left to count by Christmas ( Other than the two above!) So The Pound has now gone south as well as my Pension, my house price and my job what a horrible year 2008 is turning into. Perhaps I ought to apply for Mandy's Euro non job if its still free. The Value of Aluminium can go down as well as up!!

  • Comment number 16.

    So we're almost bankrupt then Robert? Am I relieved we have good old Gordon at the helm.

  • Comment number 17.

    There are other adverse factors which can be added to the list.

    1 Lack of investment in technology, in part due to successive governments policies.

    2 The desire to have foreign multinational manufacturing satelite plants in the UK as an easy solution. These are notorious as pack up and go activities if the tide turns, in fact some have already gone, with of course a great deal less government fanfare than when they came.

    3 The obsession with the City as the answer to the economy. As de facto the City has to shrink, possibly quite a lot, there will be a hole left.

    4 If you remove a technological edge and knowledge working you are left with a low cost labour market, and labour is always cheaper elsewhere.

    5 The EEC grant aided industrial development in countries, eg car manufacturing in Spain. If you grant aid such a brand spanking new facility with a cheaper workforce than the UK, and there is surplus car making capacity elsewhere - such as the UK, then the UK capacity will reduce. It does not help that there were fundimental problems in the UK car manufacturing sector, but the new facilities elsewhere where effectively subsidised.

    Perhaps it is time to ask Mr Bean just what he meant when he said the UK was well positioned to face a downturn.

    Incidentally those who are so convinced that migrant workers will return home, as it were, should look at the situation in Hawaii. back before the 1900s the locals did not want the work on the largely American owned plantations, too badly paid, too difficult. Sensible. The solution was to ship largely Far East workers in from overseas, a lot from China. They would put up with abuse. At the end of the 5 year contract the new migrants then decided to not go back and refused to work on the plantations, so another shipload was brought in. This continued until the migrant workers outnumbered the locals. Today nearly 2 in 3 Hawaiians are not of local origin. Local origin Hawaiians, as I understand it, complain they have lost their culture, or at least their culture is threatened. This comment is not xenophobic. It is just historical fact. There should be no assumption of what somebodyelse will want to do when there is choice. It is their decision.

  • Comment number 18.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 19.

    What a mess,
    when Robert starts a blog
    (about our stack of cards economy starting to quiver), i will know it is time to head for the hills.
    My Mom always said only pay for what you can afford,Gordon has encouraged debt for a decade the reckoning is coming

  • Comment number 20.

    Buy gold!

    We are going to have competitive devaluations as everyone scrabbles to devalue their currencies by cutting interest rates. This will fuel inflation but they won't care.

    These governments can always print more money, but they can't print gold.

    Its one of the few safe things left. If you leave your money in sterling the government is going to be effectively stealing some of it every year in the form of negative real interest rates after tax.

    Buy gold folks!!!!

  • Comment number 21.


    First time writing but I am one of the legion of daily readers etc

    Have just read the full interview of Mr Bean on the web at Scarborough Evening News

    I Hope that Mr B enjoyed his libation before the interview (as that will be his excuse)

    At one point he says

    "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."

    but manges, 2 breathes later to state

    "hopefully we are on a path which is improving rather than deteriorating."

    Help ma boab, Bob

    Is this guy daft or whit?

    Keep up the good etc........

  • Comment number 22.

    You don't think inflation is going to happen? Think again - oil, gas, electricity all are dependent on the $/£ exchange rate. Raw materials and food too are predominantly imports so are going to get more expensive.

    Never mind, our manufacturing industry exports will benefit from the exchange rates... but wait, what manufacturing industry?

  • Comment number 23.

    If I hear Gordon Brown once again pontificating about his magnificent handling of the UK economy during his time in power, I'll be putting together my emigration papers and dropping him an email telling him to stuff it.

    I just hope that history makes a point of defining the rank incompetence of the man, perhaps pointing out that his recklessness with British people's money has been unprecedented and near criminal in its magnitude and forthcoming implications.

    The sooner Gordon Brown is consigned to the bottom of the dustbin of British political history, the better.

  • Comment number 24.

    The sinking pound is negating to some extent the benefit of the price of oil dropping. That's serving as a double whammy to the Treasury coffers as well. I fht eprice of oil starts rising again, and I for one believe it will in the near future, petrol prices are going to up twice as quickly as they did before and perhaps hit higher peaks.

    All this does not bode well for Britain's ability to climb out of the impending recession. The trouble is now that if interest rates fall and banks start responding to Government pressure and ease their lending restrictions, then we are in a situation where people will take a leaf out of the Government's book and resort to borrowing to get themselves by.

    Then it won't be just imported inflation we need to be concerned with, but inflation in general. The lessons of the Seventies should not go unheeded.

  • Comment number 25.

    This mess has shown that to allow politicians anywhere near the tiller invites accidents just as night will follow day.

    The biggest nonsense here is that on eth way up the government was taking credit for growth even though it was solely based on borrowing.

    Unfortunately there was no real growth it was all paper based. Had it been there we would have made provisions to weather a down turn What we have now is a pwoerless government blaming everyone else for their own economic mismanagement. How lonmg before they have to lay off the 600k of extra civil servants they took on.

    The cupboard is totally bare and to listen to the Chancellor saying we all have to cut back is laughable.

    We are in a mess and we need to point the finger to get things sorted. Why? because we can no longer allow those who had no foresight to realise nothing goes up in a straight line and blew our reserves to continue to manage the economy, That also cuts for the incompetance of the Financial regulators.

    We have no choice but to get out the hatchet knives and give future generations a chance. it really is that simple and at the same time that awful.

    There can be no more spin or dumb red herrings about meetings on boats the problem needs a toal reversal of approach to sort out as without doing so we truly will all be up the creak without a paddle and not becauze Labout taxed the paddle to the point where only the party heirachy could afford to buy one at John Lewis with taxpayers money as no one else can!!

  • Comment number 26.

    RP - Who is this upstart Hugh Pym? He seems to have taken your 6pm news slot!

  • Comment number 27.

    #1 Glanafon

    I think it's a reasonable comment to make, many nationals of the new accession nations have come to the UK for the work, and don't necessarily have strong ties to the country. If the UK fares worse than other EU countries, you might expect the extended European labour market to work its magic and provide jobs elsewhere for those who can and will travel. I bet many Poles and others would love to go home if the prospects looked better there. Robert is merely pointing out that it doesn't at the moment.

  • Comment number 28.

    mr peston,I have lost all respect for you,after your anti tory rant about mr osborne.what you did on the osborne matter was a disgrace,you should'nt have even got involved,but now now I know why,father a labour lord and you wrote gordon browns book and a good friend of his,me can not even read your blogs anymore ,you remind me of bbc bias.

  • Comment number 29.

    Robert, will you be appearing on Newswatch this week? Raymond Snoddy indicated that you were due to be on last week and the previous week but no sign yet!

  • Comment number 30.

    yet again more bad news aimes at lowering our self asteem and convincing us via the media that we need to drop sterling and join the euro, this seems to be government policy to drag us under european control without our say.
    i can only wonder how much members of this government are being paid to knife there own country in the back, i know mandelson is not above doing underhanded things as we have seen before.
    well if they get there way i feel they should be held as traitors to this country and publicly hanged.
    its time the people of this country fought for there own rights even if it in opposition to what those fools in westminster wants.

  • Comment number 31.

    Sabes10, I'm glad you can make light of what is looking more and more like the end of the world as we know it.

    I wonder if you'll be so glib one year from now when sterling is worthless, energy companies are rationing supply to a few hours a day to maintain profits and and we're all living in cardboard boxes whilst the millions of government bank-owned homes seized in the forthcoming flurry of mass foreclosures and mortgage call-ins gently rot.

    None of us have seen anything yet. Civil unrest and massive social breakdown of a society - which even before the depression was staring into the abyss - are pretty much inevitable. This is going to make the 1930s look like a weekend at Butlin's and when it's over, if it ever gets over, the world will be a very very different place.

  • Comment number 32.

    If our financial crisis is as bad as during the Black Death, we should forever call it the Brown Death.

  • Comment number 33.

    Sterling at record lowagainst the Euro??? I don't think so - unless the BBC web site has the numbers wrong....

  • Comment number 34.

    'But all that means is that we shouldn't expect vast numbers of the recent émigrés from those countries to return home when the job market tightens here.'

    That will be decided on how many are eligible for JSA and other benefits.
    I'm sure the UK government will have some information on these various numbers to work out how many will have to leave if they aren't entitled to any help under the current system.

    As for the economy the government needs to support small businesses and individuals and reduce any excess government spending to help the economy so consumers can pay off loans,credit cards and mortgages to a more sustainable level.

    Rising unemployment in the UK when borrowing for mortgages,loans and credit cards is at its highest ever means the government needs to step in now and help the economy.

  • Comment number 35.


    You should have bought dollars when the were 50p each. Now they are 75p.

  • Comment number 36.

    Interested by the comment about the UK joining the Euro. When he was Chancellor, Gordon Brown used to talk about the "convergance criteria" and the need for economies in the Eurozone to have broadly similar interest rates, inflation rates, National debt as part of GDP etc.
    It seems to be that all of the European economies are now in the same "rickety" boat. Would this be a good time to think about joining the Euro and ditching one uncertainty, namely the volatile exchange rate?

  • Comment number 37.

    The pound might be dropping at the moment because of fears that the BoE will be making further base rate cuts in the coming months, possibly to almost halve of the current rate before they feel the need to stop, and the markets are factoring that in.

    One thing that is not being factored in, is that commodities, mainly precious metals are down at the moment as hedge funds and financial institutions try to liquidate assets in order to meet debt obligations which is artificially pumping their prices down and keeping the dollar up. At some point in the near future, I expect to see a reversal in the downward slide of gold as investors scrabble for a safe bet, and a precipitous fall of the dollar which is only going up at the moment by nature of its reserve currency status.

    When China and the other eastern nations see that there is no option but to dump their dollar reserves, then it will go into freefall, and will most likely take the pound with it.

    A safe currency in the future would seem to be the Euro, and in the longer term, the pound may well fight back if we have sensible financial direction from the Govt. and the BoE.

    For now, I am buying a few thick duvets, stocking up on essentials and getting in a stock of paperbacks and candles to see me through the winter.

  • Comment number 38.

    It is hard to see how the collapse of Sterling in the global marketplace can be anything but inflationary and indeed ‘depressionary’ for the UK. For example today, oil did drop again, together with almost every other commodity, but in terms of Sterling most of the commodity prices remained constant - some even rose in sterling terms as they are all priced in USD.

    Normally a weak currency can aid in the export/import balance of payments, and the UK does import more than it exports even in terms or core goods, those costs will rise.
    In the UK manufacturing sector imported raw material costs will most likely rise in terms of sterling, a sector who already sees demand from overseas drying up. With the depth of the impending recession for our trading partners it is hard to see a weak pound being a strong enough stimulant to encourage a dramatic rise in orders for UK goods despite a more beneficial sterling rate.

    Perhaps the BBC should run the "The Good Life" series as self sufficiency may be more that a choice for a family - it may be a requirement for the country.

  • Comment number 39.

    Like I said in the blog, a couple of weeks ago, people's savings in the banks are secure - it's just that the buying power of the money will fall. In other words, £50,000 will eventually be equivalent to about £35,000.

  • Comment number 40.

    "I've been desperately scrambling around for something positive to say today..."

    I didn't realise it was a requirement of the BBC's Charter that you only report good news.

    You've certainly not been doing that so far as Banks are concerned. Still, their depressed share prices meant the taxpayer was railroaded (without any kind of democratic vote on the matter taking place in Parliament I might add) into supporting the bad banks at a knock down price.

  • Comment number 41.

    Ah yes, gold. Have u seen the price recently, #20 DontCallMeDarling? (lol)

    It's trending down, believe it or not, from a peak in February.

    One would expect gold to be rising, safe haven as it is.

    Some comment on this is here:

  • Comment number 42.

    This drop in sterling was predicted last year. We have had a chronically weak dollar for the last 6 years, which led to an increase in sterling. We are now back to 2002 echange rates. Far too much currency speculation took place without sound reasons, some were even gambling on reaching $2.30, this clouds the value of Sterling as an economic indicator

  • Comment number 43.

    "I've been desperately scrambling around for something positive to say today" - Robert Peston.

    We pay you to report the news as it is. Not as you wish, or are told to report it.

  • Comment number 44.

    The way the Gov't and Bank of England has failed to support our Banks...

    Ie Nationalisation and forced marriages...

    Has destroyed confidence in the UK

    The Uk stockmarket is finished.

  • Comment number 45.

    I moved to the US in 2003 and started a business. This year should have been good having got momentum. From March sales plummeted by 80% of projected and 70% of previous year. At the end of November I have a UK life policy maturing and I was expecting to get $30,000 once I moved it here - that will closer to $20k now.

    Wonderful - banks have pulled all available credit from me so I cannot pay suppliers - do the banks want us all to fail?

  • Comment number 46.

    Well here are a couple of other reasons Sterling is starting to collapse.

    Note the graph post-Brown in 1997...

    Also as for the "credit crunch":

    oh and the government deficit we are running is a new record, not even in the same league as the 90s.

  • Comment number 47.

    Buy Gold!!! The markets hit the bottom, get back in!!! Property is cheap, get a mort gage!!
    Buy a bargain!! Hire a cleaner!! upgrade your car!! Have your nose and chin reduced in the lunch hour!! Order another starbucks!! book next years holiday!! Confirm next years private health insurance!! get ready for this years company Christmas party!!install sky hd!! Plasma tv please, 40 inch looks good!!


    Pawn your jewellery, bin your pension, lose your house, lay off your servants, use your bike, use the wifeys anti blemish cream, take a flask of coffee, mend the hole in the tent, cancel all unnecessary xtras, lose your job

    Time to quote that rendition of Robert Shaw in Jaws

    Wakey, wakey everyone cos mr recession is here and devaluation is nothing but a signal that rates are going to lowered quickly - when one pound equals one euro, why have a referendum? hehehehehe

  • Comment number 48.

    Tsk, that link is now dead. Try this one instead.

    The gist was, large investors and central banks are dumping gold to free up cash, this is pushing the price down, the price will rise when they stop dumping.

  • Comment number 49.

    Am i the only one who noticed that the poud recovered quite a lot at the end of the day. Or am I not allowed to be optimistic on this blog.

  • Comment number 50.

    Interest rates need to be raised by 0.5 - 1%, not lowered. This will protect the currency, and help to bottom out asset (primarily house) prices, allowing stability to return.

  • Comment number 51.

    I guess the folks so happy about the plight of the Banks won't be so happy now they cannot get a mortgage, or a loan, and soon will not be able to afford to go on holiday.

    You will see much much higher prices in the Shops for imported goods, and a reduction in choice and in quality of those goods available.

    And of course there will be yet more redundancies and business failures.

    Oh and fewer Houses of any sort being built.

    Makes you proud to be British.

    Wasn't it in Mary Poppins that a Bank Partner says whilst the Banks of Britain stand tall so does the country ?

    How prescient of them that the Banks failure signals Britains final breathes.

  • Comment number 52.

    BoE should have cut interest rate agressively before as US did last year. There are clever people who sit there. They should anticipate and not only react to events. At this moment it is clear to everybody that interest rates must be cut very agressively and ASAP.
    I was very surprised how people started to fear and panic after collapse of Lehman Brothers. I wonder if Lehnam Brothers had been saved would we have all this current, mostly irrational mess?

  • Comment number 53.


    I think the majority of people who have come to the UK from Eastern Europe will stay.

    What has never been reported correctly in the UK is that our benefits, health and community system is very free and easy.

    I used to work in Belguim for about 5 years. During this time I couldn't use any of the local facilities, could not claim any community benefits and healthcare is only available via insurance companies. To gain any kind of national and community benefits you had to signon at the local government centre on a regular basis with proof of employment contracts - if you didn't you had to leave, EU national or not.

    It has been a well known fact that people from Asia and America take UK holidays just to take advantage of UK healthcare.

    Why do you think everyone is coming to the UK from all over the world ? Our wonderful weather or the ease of taking the money from our pockets ?

    Unfortunately I feel things have gone too far, in Europe we are the odd man out. We are taken advantage of and picked on - yet not even our own government will stand up for the UK.

  • Comment number 54.

    There a distinct note of over-exuberance or over-exaggeration in Robert Peston's words about the gloom and disaster he is predicting.

    Is he right?

    Keynes warned about the contrary error of pessimism in times of recession.

    Yesterday economic journalists were all predicting boom, boom, boom.

    Now we have Peston!

    Bring on Rory Bremner.

  • Comment number 55.

    Is it wise to invest/buy in oil at the moment as it's relatively cheap? I don't know how one can do this, or where to put it all (perhaps a new shed may be in order). Ideas anyone?

  • Comment number 56.

    "feel-bad factor" may be taking root in the UK and some experts have warned of the dangers of a self-fulfilling prophesy whereby, by making regular comparisons with the mid 1970s and early 1990s, the country talks its way into a recession. "

    Well we have been saying this for months !
    We Have been Talking ourselves in to Recession !

    At least 50% of the problem, 'lack of confidence' has been caused by the media hype and scary graphics.

    The MEDIA creates the panic.

    And also Everytime when things seems to look improving, one idiot comes out with his Doom and Gloom and Recession reports then that is it !
    knocking UK shares and weakening the pound.......


  • Comment number 57.

    Robert one remarkable aspect of your reporting is that you continue to report on the financial mess on the daily yet don't ever draw the attention towards the question: what do we (the government, the bankers and the rest of us) have to change in future to be a normal economy, not one built on debt? You're resisting to acknowledge the obvious need for change, and so seem most other people here.

    The impression is underpinned by the fact that you are a high-ranking officer in the army of rate-cut obsessed Britons. How can it be good to cut rates when the society is over-indebted?

    Your motto seems to be: "Lets destroy the pound, lets destroy the savings. People who are prudent need to be punished, long live the bubble". But you're forgetting that for your beloved bubble to re-inflate you need a world willing to pump money into Britain and never ask it back. You don't expect that to happen, after all of this, do you? No lessons learned, no future!

  • Comment number 58.

    I wonder if it's time to totally re-think the way our economy works and how it's true value is calculated.

    I'm no economist, so these ideas will probably be shot out of the water. But. if we don't explore new ideas - no matter how radical they may appear, we will only perpetuate what has existed and repeat our former mistakes.

    Firstly we should re-value our whole economy based upon it's true economic value and not just its financial value. let me explain. For too long, we have focused upon money rather than value. London centricism has been based upon the value of cash generated within the M25 being greater than that generated outside the M25. This concentration on money rather than true economic wealth had led to a lack of investment and hence the devaluation of our true economic assets. You may ask what is radical about this idea? It may be psychological but it will re-focus our views on true economic value and put money/finance back where it should truly be as the oil of the economy and not the centre!

    Secondly, I think that the truly BAD news regarding the state of the US economy will not be made public until after the elections. If I am right, then I believe that the US will see a major retreat from globalisation and strident calls for isolationalism. We have to remember that the US will always look to secure its own well being no matter what the political rhetoric says. If that is so then the UK should take the lead in the EU by proposing a mirrord response that aids inter-EU trade e.g. tax relief and financing. After all, the expanded EU is nearly capable of feeding and clothing itself from within its members borders.

    Despite enormous bail-outs worldwide, the bankers will still not trust each other and are seeking to recover profits from the very people who came to their rescue - us! Hedge Funds are waiting to feed on the bones of companies that are being squeezed by lack of capital. It's now time that we put these parasites back in their box. I'm not calling for some socialistic governance but in the short term we should demonstrate to these creatures that our national interests are far more important than their desire to profit from our misfortune. They must be made to help even if that help costs them in the short term.

    Rant over, but I would appreciate your views.

  • Comment number 59.

    Here are some positive thoughts:
    1. The BoE will cut interest rate by 1% very soon with further cuts laters. UK Goverment will start spend money on public projects. All together it will stimulate economy and help people to pay their mortgages and loans;
    2. Other Central Banks and Goverments are also stimulating their economies;
    3. There is still a shortage of housing in the UK and population is growing;
    4. In 1-2 years people will read good news in the newspapers and will forget this panicky time
    5. It is now great time to buy shares. They are so cheap and will grow in value very significantly

  • Comment number 60.

    The Henny-Penny moment (when the sky really does fall down) will be on November 4th, when Barack Obama, against all expectations, fails to win the Presidency.
    This will represent the end of political hope, and Wall Street will fall off a cliff (to be followed soon after by riots in Los Angeles).
    This will be the very moment to BUY.

  • Comment number 61.

    Regarding the UK joining the Euro, surely the one 'bright spot' is that the UK government and the BoE have the ability to make decisions based on what is best for the UK. Over the last couple of years we have seen the ECB focusing on Inflation as Germany (in the main) had an inflation issue. Spain and the Irish Republic need interest rate reductions to stimulate growth. Those countries would almost vertainly be in a better position to face the global economic downturn if they had been free of the enforced monetary policy of a German/Franco Central bank.

    The real unfortunate issue is that the freedom to control taxation, monetary policy etc. has been been abused over the course of the labour government, it was obvious the bubble would burst but little action was taken in advance to soften the blow. Add that to selling off gold reserves for a third of the present value and destroying of pensions even before the latest stockmarket crash and maybe we should just hand over the reigns to Europe. Could it really be any worse?

    Maybe the tories should have a go first though...

  • Comment number 62.


    Well i am sure GB will be at the helm for sometime now . He must be shooting up in the poles. its seems labour can do wrong, Even the war people marched on the streets to say no. but at the last election they still got back in.but good old gord give you all that big fat bribe called money.


  • Comment number 63.

    Following on from what I posted earlier about confidence in the US being weakened, seems I was wrong about when it would start, seems I missed the boat, because close allies of Washington such as Taiwan are already dumping US assets!

  • Comment number 64.

    #49, the movement today has been around 10 cents in total, it dropped to below 1.52 in early trading, but was just under 1.60 recently.

  • Comment number 65.

    #55 - Oil is going to keep going down if we have a global recession. Even a substantial output cut by the OPEC producers has not stemmed the falling price. Unless all the pundits are wrong and we somehow avoid a global downturn (not likely given all the results we have so far!), oil will keep dropping as demand tapers off, reaching a low in Feb or March as the winter demand for heating oil and Xmas travelling finishes.

  • Comment number 66.

    Ah dear Robert, not had a good few days have you? Your socialism is showing old bean. I could have wished you a great career had you been impartial, now you've gone and spoilt it all by showing us that you are not a journalist, nor are you a money expert, you're just another NU LAB preacher.

    And your faith is doomed, not today, not tomorrow, but doomed for sure.

  • Comment number 67.

    what really frightens me is that the growth figure is for 3q08. i.e. the economy was already in freefall BEFORE the financial crisis went critical. the 4q08 number will be hair-raising..

  • Comment number 68.

    True. Interest rates do need to be increased because the populous saving is only way economies and start again afresh.

    Thrift is King. Kings have short thrift.

    However, this is not the top agenda point and arms are thrown around to try and protect (them) and (their) systems of wealth.

    We have had no say in any of the decisions taken over the last few months, yet those decisions will have a far more reaching effect than joining the Common Market or the Euro

    Nor have we challenged those decisions collectively like those of America that scrutinised (their) plan in great detail before being hoodwinked and scared into submission.

    A Prime Minister that did not and has not the backing or (vote )of the people has taken a unilateral decision to impoverish a nation instead of burn the cyst.

    The trouble with us Brits is that we know it is wrong, we say it wrong but its not until its too late that we take to the streets.

    We lost a civil war over our ineptitude.

    Its time we seize control of our (peoples) representatives away from the current puppeteers.

    Alas, the rich will maintain wealth, the deserving class will be left to pay and the poor will be supported by an amount of pennies above anarchy

  • Comment number 69.

    There is a lot of doom and gloom here. Yes things are not going to be good but it will not be the end of the world.

    The rich will get richer, they will buy the reposessed houses cheap and rent then back to people. As the next boom starts they will cash them in and it will start again. This is how the capitalist system works, those with capital gain, those with debts lose. Everyone gains for a stretch then it is taken away from the poor and we start again.

    As opposed to the past in the modern era most people have not got into debt to feed themselves and their family but to buy depreciating assets, ie cars, tv's, new clothes etc.

    People will have to get used to the fact that the 32inch LCD TV is the one they are going to have for the next few years, the 40" plasma tv will not be an option. There will be a lot of redundancies in the retail sector, look at the number of shopping centres there are.

    As imports will be expensive and labour will become cheaper, people will start up small manufacturing companies supplying local markets and if they set good standards will be able to export them. Most German manufacturing exports come from small companies with less than 100 employees not the giants such as the car manufacturers, for each of them, there are thousands of small engineering companies .

    Its a recession, people need to realise that shopping for "stuff" is not the be all and end all of existence.

    I have spent the last 10 years with a modest mortgage (1.5 my UK average salary) and no other debts. I have achieved this by going without some things so I can afford others or saving money whilst I waited to buy it. I have never had a new car. I buy clothes when an item in my current collection starts to look shabby or break not because I want it.

    So long as one of me or my partner keep our job we will get by without any problems.

    I have very little sympathy with those who loaded their lifestyle onto their mortgage or who have big debts on their plastic, they have probably had more fun and gadgets and foreign hols over the last 10 years than me so I feel Ok with looking forward to a more comfortable few years than them.

    Anyway, I am starting to lose track of my ramblings so that is probably a good point to stop.

    Yours in comfortable solvency.


  • Comment number 70.

    We all should look on the bright side.

    We have just opened some of the best shopping centres in the world.

  • Comment number 71.

    Well Robert,

    If you're stuck for something to write about you could always do the country a favour and explain how we got here. After all, as an employee of our Public Service Broadcaster. The phrase Public Service means serving the public...the remember.... the ones which pay the license fee and therefore your salary and your gold plated pension.

    I noticed you produced a nice little video for the great unwashed entitled "Crunch guide
    Robert Peston explains what caused the crisis "and predictably missed out the only bit that really mattered.

    Yes, you've guessed it, Debt-based, fiat, Fractional Reserve Banking. You know the one? The system that requires an exponential expansion of debt in order to sustain itself. Don't you think that this may have had something to do exponential expansion of credit over the last 10 years?

    I tried to help you out before by posting a link to the instruction manual on how to run a Fractional Reserve Banking System published by none other than the Federal Reserve. And where did they learn their tricks've guessed it...the good old Bank of England. In fact nearly every country in the world operates this deathly system on the BofE's model and we taught them how to do ironic.

    Unfortunately, your moderators see fit to delete my link no matter how I split it up or disguise it. They say that the link is "Unsuitable" or "Broken". Well its definitely not broken so I'm left with "unsuitable". Now why would a link to a pdf which explains the inner working of the Fractional Reserve Banking system published by the Federal Reserve be "unsuitable".

    I'll try describing the link in the next immediate post and we'll see how the moderators handle it.

  • Comment number 72.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 73.

    I wonder if it will work......

  • Comment number 74.

    Re post #50 (Ozymandias)

    You, I and all the real free-marketeers know that we have to increase interest rates, but our blinkered politicians and mainstream economists are stuck in the 1930s thinking (wrongly) that low interest rates get the economy moving. Foolish little boys.

    "Look upon these works ye mighty, and despair".

  • Comment number 75.

    Robert, rather than searching for something good to say, why don't you try some objective journalism and highlight your chum Brown's hand in all these problems.

    Or maybe it was all George Osborne's fault...

  • Comment number 76.

    But while we are on the subject of the vulnerability of Eastern European, Russian and South American economies, here's something positive to say about our banks: their loans to these regions are limited.

    If there are big loans losses to be suffered by banks exposed to emerging economies, disproportionate pain will be suffered by continental banks.

    Oh Robert, what a silly observation, the banks, whether (continental) or (ours) have all been given explicit guarantees so there will be no pain for them, only for the tax payers

    In the great crash, bankers lept from their windows having lost everything, in the the great smash and grab the bankers parachuted (bailed out) into the arms of their keepers puppets

    You sow from what you have reaped

  • Comment number 77.

    #56: "The MEDIA creates the panic."

    Market data you can't see creates the panic. The man in the street is not moving billions of pounds around, so what he thinks does not affect the day-to-day much.

    You can't talk your way into a recession either. If you talk the economy down during good times, you look silly and people ignore you. But these are not good times. The banks will not lend no matter how much you promise to think only positive thoughts. They will not lend because they have nothing more to lend against. Their capital has been levered up as far as it will go, and now they are borrowing their capital from you through the government.

  • Comment number 78.

    27 crispblog

    re Poles etc

    Maybe. I agree almost certainly a remark made without ill intent by Robert if that is your point. Still dont agree the issue.

    I don't see the migrant workers are the problem. All 500 million individuals resident in the in the EEC can legitmately come here if they want to. That is before countries outside the EEC who have workers here are taken into account. To start raising these sort of issues is unnecessary. Implicit in the statement is a question of whether these individuals really are wanted here, when it is totally inappropriate, it is their choice, they have entitlement. If they meet benefit criteria they are due it. If they want to stay it is up to them.

    It is not clear where this recession is heading. Everybody hopes it is shallow and does not drag on. However if it does not all sorts of issues will be dragged to the front as scapegoats and diversions are sought by fringe elements. This is likely to be one of them. As soon as you have migration and national and ethnic identies you have tensions if the domestic situation is rough. It may be that more not less migration occurs within the EU due to economic problems and climate change. Once choice is made available it is up to the individual, well it is at the moment.

    There is no reason why those British who have left the UK to live elswhere should not return in mass. Nobody would dream of raising that as an issue.

  • Comment number 79.

    At the time of writing (9.30pm BST), the pound has recovered 4 cents on the Euro during the day. A dramatic recovery in intra-day terms. What's behind that? Anyway, some good news, however small, for sterling holders to end the week on.

  • Comment number 80.

    Mr Moderator your time taken to get the thumbs up on these posts closes debate and just ends up with list of statements.

    Hasten your approval and let us have the ability to debate in real time rather than miss comments because of lethargy

  • Comment number 81.

    See - "Gordon Brown "The Rock", Rock Solid Guarantees ; and the Rock and Roll Generation" on my Hitch Hikers Guide to the Galaxy ( site for a 21 page historical analysis of how we have got into this predicament.

    It is a challenge and an opportunity. But whether or not we are up to either remains to be seen.


  • Comment number 82.

    'I've been desperately scrambling around for something positive to say today '

    C'mon Robert - I've been reading your bloggs for a time that would seem like eons :)

    Positive, peston?

    Your having a girrafe mate!

    Oh btw, we are knackered :) So I agree !

  • Comment number 83.

    I am 'positively' sure that our central bankers are just like Alan Greenspan - haven't a clue what to do!

    One little snippet of advice I would offer is that when things go pear shaped in economics it is often true that you should do the opposite of what you would have done in the past.

    That is, in this case, when your historically validated action would have been 'lower interest rates' you should 'raise interest rates'.

    Let see them mess it up again - just like they did in the 1930's!

  • Comment number 84.

    69, good post, good morality


  • Comment number 85.

    68 a most excellent post sir.

    You know, these blogs have a vastly combined superior intellect that the mass culmination (if i can call it that) of the entire civil service / governemt and the rest of the paid useless buggers that have jobs in the public sector!!

    Hey, think I'm wrong? wait until the battle between government and the remaining unions start, this is going to be serious!

  • Comment number 86.


    The problem here supercalmdown is that britain has been punching above its real weight for faaaar toooooo long.

    we raped many countries for decades, its all spent and no one wants to be raped any more.

    We are what we are, a little insignificant island in the world - get used to it!

  • Comment number 87.

    One of the main cause f these problem is BOE it should have started to cut rates long time ago. In next months meeting it should cot rates by at least 1%.

    Pound is not week against the dollar this was the rate few years back, pound was over valued in the last few years; fair value is around £1 = $1.5.

  • Comment number 88.

    Re comment 77 by WerringtonSilent..agree absolutely with those comments, comments about Peston setting the agenda, making things worse and so on that started just around the Northern Rock crash are just ridiculous.

    Returning to the main subject of the article above.... while commentators speculate on 50, 100 or 200 basis points and a further drop to 2.5 per cent ... they aren't "making the MPC do it" BUT they are showing that this is already expected... that's to say ..discounted.

    If it's discounted in a was discounted days ago amongst the people who DO move billions around....

    If it IS discounted already it means the positive effect can't be great... though the negative effect of it NOT being done , may well be.

  • Comment number 89.

    Mr Peston, I am not sure if this is valid thinking, but maybe it should be factored into reasons why the dolla is gaining.... ponder please.

    The USA instigated this crisis from mortgages, why was this uptake so great? because in the USA people can legally walk away from a mortgage. Keys in the door of the lender and go.

    Here and in Europe is a bubble of housing, economy etc etc.. blah we all know this.

    In Asia,the savings of ordinary people are invested in western growth, housing development etc.. funded by extremely low ntrest rates in Asia.. 1% etc.. So for a chap in Hong Kong to borrow 10 grand to invest in the USA at 4% return....

    The house of cards comes crashing down... push comes to shove.. Who is best able to recover fast from this problem (And here remember that the US gave 700bn to their banks and the UK 680bn, bit of a scale difference?)

    The USA workforce is unburdened of debt.. they have and can still walk away from mortgages, whilst in the EU we cant, and the Asian saver has borrowed so is burdened...

    Is this maybe another reason why money is flowing into what should be a very sick dolla?

    The base of the US debt pyramid is actually the only one free of debt, and is free to move to new markets and generate wealth far far far (and i reiterate) far faster than any other country.

    It will be a horrible time for all... but the one fastest to get up of the floor and not be counted out wins the trophy..

    Valid comment or not Mr Peston?
    And thanks for your engagement over the past weeks, it has been stimulating for me and I think many here.

  • Comment number 90.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 91.

    I would like to add to my comment 89, that for a long time I thought the USA law allowing 'walk aways' was favourable..

    I never imagined how advantageous it could be for a country in such a global crisis situation.

    The rest of the worlds workforce burdened by debt - and one countries workforce not..


  • Comment number 92.

    I think you are not accurate. The pound has been lower against the Euro!

  • Comment number 93.

    No 69

    It is going to be you and (your) sort that suffer the most for it will be you that has to pay for the rich to maintain (their) wealth and pay for the poor to maintain ignorance.

    And forgive me, but for every one of (your) sort that one or even both partners lose their jobs, then you become another human statistic that need to be supported to prevent anarchy.

    The difference between this coming depression and the other is that it was the job of the (man) to support the family and even when all was lost the (family) stuck together to support the (men), grow food, make clothes. The church was used for communities to come together and support each over through the void. Now both partners need a job to keep afloat

    However, if your partner lost their job and you maintained yours, the effect would be devastating for you all as your salary would probably not be enough to support your middle class (wealth).

    Where would you turn? Would you grow vegetables? get out the wool? would your kids wear those jumpers, would you allow yourself to let them wear those jumpers - your kids would be bullied (wouldn't they?)

    Could you get support from your (community). I think not, you might say a brief hello to your neighbour whilst washing your car (probably) and go to church at weddings

    Having a job is all that is keeping you from the mire and mire is closer than you may think

  • Comment number 94.


    You may be the only person in the country who thinks there hasn't been enough reporting of the 'soft touch Britain' variety. I'd say there was far too much of it, when you consider that Poles and others have a legal right to be here, like we have a legal right to live on the Costa del Sol after we retire.

  • Comment number 95.

    Time to take the big microphone away from Mr. Doomsday Peston - his 15 minutes of fame are long gone. Revelling in his own glory, he's now contributing more to the irrational fear, and less to the informed and rational discussion.

    If everyone were to decide this crisis were over, it would be over. Buy stock at low prices, start purchasing again, take your car for a spin - suddenly people would be employed again.

    Stop fear-mongering - if you have money to spare, then now is the time to start spending. If the markets are about to collapse, then it's better to spend your money and have something; and if everyone did it, there would be no collapse.

    Half of this collapse is entirely artificial.

  • Comment number 96.

    I can't believe no-one else has this username!

    (I don't really (loverobertpeston) by the way)

    Anyway, I am missing something?

    This was a crisis caused by an excessive supply of cheap money!

    What's the answer?

    Even more cheap money!

  • Comment number 97.

    thank you mr moderator, it must be quicker to allow posts that are obviously within the house rules straight away rather than hold up debate whilst moderating particular posts

  • Comment number 98.

    I was checking the currencies out yesterday and commenting to my partner that the UKP is trading at or near 12 month lows against all currencies excluding two NZD and AUD.
    What gives. New Zealand is in recession already, I can understand that, but Australia is not. I find it really strange, and perhaps indicative that problems are brewing in the Australian economy. I hope not.
    Just as an indication, if dangerous house price to earnings ratios are having an affect on the downturn in the U.K and U.S, they are even more skewed here, ranging typically between 7 and 10 times earnings.
    We have family planning to move out here in a year or so, which if the AUD to GBP improves any more will make it much easier for them to finance their move.

  • Comment number 99.

    So Mr Peston, no more political dabbling this week ? Nothing on Mandelson to match the bile you put out on on Osborne ?

  • Comment number 100.

    Take a look at the OECD figures for Purchasing Power Parity. Even with today's fall the Pound is still 6% overvalued against the Dollar, and just about competative against most European currencies.

    This isn't (yet) a Sterling Crisis, just a long overdue correction.


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