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One-way bet?

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Stephanie Flanders | 14:20 UK time, Monday, 1 March 2010

As the Conservative lead tumbles, so falls the pound, and the price of UK government debt. Apparently, traders are worried that the election will come and go, and we won't know who's in charge of No 10.

The door of 10 Downing StBut, when you think about it, the markets might have good reasons to sell the pound, even if Labour or the Conservatives win a clear victory.

How so? Well, consider, first, the other reasons why the markets might be down on the pound. (Yes, I do know that explaining daily exchange rate movements is a fruitless exercise, but I've started now so I guess I have to finish.)

There were some pretty dovish remarks last week from the governor of the Bank of England and some of his colleagues on the Monetary Policy Committee - that could lead traders to think interest rates will stay low for even longer than previously thought.

Other things equal, if rates are expected to be lower than before, then that will push down the pound.

Thursday's dire investment figures for the final three months of 2009, and the news on Friday that investment and exports had played no part in the recovery so far, could also leave investors worried about the health of the economy from now on. That's why sterling did badly at the end of last week.

But it does seem that politics and the deficit are at the centre of today's moves. After all, some of the latest economic news - like this morning's manufacturing purchasing managers' index - was quite good.

The line is that markets fear uncertainty. And a hung parliament, in a country that is not accustomed to them, sounds like a very uncertain prospect indeed.

As a factual matter, you could say this fear is ungrounded. It turns out that seven of the 10 most ambitious programmes of budget cuts in the Organisation for Economic Co-operation and Development in the last 40 years have been achieved by coalition governments.

There is also the fact that Britain's third largest party - which could be the kingmaker in a hung Parliament - has a respected economics spokesman, Vince Cable, who is somewhat more hawkish on the deficit than the chancellor.

However, if you are a sterling trader, none of that really matters.

Even if a minority Conservative government, or a coalition, could probably pass a tough emergency budget, the important point is that you can't count on it. The shadow of uncertainty could hang over the UK for weeks.

But here's the funny thing. Imagine this weekend had brought news of a massive widening of the gap between the Conservatives and everyone else - to the point where a Tory election victory looked all but in the bag.

What would that same trader have done then? It's quite possible he would have sold the pound as well.

Why? Because if he knows anything about George Osborne it is that he would run a tighter fiscal policy than Labour, and he would start that tightening right away. Other things equal, that should push down the pound.

As the shadow chancellor explained very clearly in his Mais Lecture last week, more rapid budget cuts need not endanger the UK's recovery. And the main reason he doesn't think so is that it would, other things equal, mean lower short and long-term interest rates, and a lower - sorry, more competitive - pound.

Mr Osborne didn't exactly say: "vote for us, vote for a lower pound". But last year his staff were keen to point journalists in the direction of an article by a Goldman Sachs economist, Ben Broadbent (see my post from 14 September), making the argument that tighter fiscal policy need not hurt UK growth.

The central part of that analysis was that exports would take the place of the lost government spending, because budget cuts and relatively looser monetary policy would lower the value of the pound.

This argument may or may not be right. But, as I say, the Conservatives were quite happy to cite it in support of their policies.

We have to assume they would not be unhappy with a lower pound. Indeed, if the pound fell on the back of an Osborne emergency budget, you have to imagine they would welcome it.

And what about Labour? What if traders had woken up this morning and found Gordon Brown 10 points ahead?

Well, on the basis of the previous argument, you might expect me to say the pound to go up. After all - wouldn't a "loose" Labour government drive up long-term bond yields (ie long-term interest rates) - and encourage the Bank of England to tighten sooner as well? And wouldn't these higher interest rates spell a higher pound?

Well, maybe. If you're an academic economist. But it might not be the first instinct of many investors in the markets, many of whom have gone back to associating Labour with economic instability and possibly higher inflation as well.

In fact, you might expect them to sell on a big Labour lead as well. After all, Labour needs a recovery built on exports as well. And even with the dramatic depreciation we've already had, there's not much sign of those exports coming through.

Chart showing sterling exchange rates

So, there might have been political and economic reasons to sell the pound - whatever today's polls had said. For today at least, that is what is known in the trade as a one-way bet.


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  • Comment number 1.

    If I was an investor the possibility of a hung parliament in 2010 would fill me with dread.

    Back in the seventies it was a three way coalition. That never worked.

    Today we have devolved parties which throw the whole idea of a hung parliament into chaos and disarray.

    The price exacted from some of these minority parties some who want complete independence for themselves could lead to the complete breakup of the UK and the end of any attempt to stabilise the economy.

    In better times a trial run of such a parliament might have withstood the pressure but at a time like this the electorate will have to accept either one or the other together with the consequences of what they do. There is no scope to experiment.

  • Comment number 2.

    For a forex trader any change in exchange rates is a great opportunity to make a bag of money even though the majority of British people will suffer. We can hope only that the massive flux of foreign currency into our banks does some good, but I doubt it.

    A permanent 25 % devaluation serves only to help the government of whatever colour with its debt. Everyone else is poorer. It would be more honest and probably kinder to add an extra 25 % tax on everything. At least they could take that away. Devaluation and the associated inflation stick.

    Devaluation has never solved any economic problems for us before and it will not now. Remember Harold Wilson: "The pound in your pocket is still worth...."

  • Comment number 3.

    I mentioned in your blog only late last week, that a hung Parliament was stll 5/2 at the bookies

    In these uncertain times, worth a punt

    Cameron should have stuck with Osbourne's austerity theme. Had he done that, by now, the Conservatives would have looked very sound if that had been the consistent line, with Brown's investments v cuts line being made to look both foolish and inaccurate

    Instead, Cameron's indecision has let Labour off the hook, and we now have jittery markets

    Makes me cross!

  • Comment number 4.


    Thank you for not using the terms "Tory" or "Tories" anywhere in your excellent article.

  • Comment number 5.

    When are economists going to stop talking rubbish about an export lead recovery. It's driving me mad. The UK has never done so in it's past when we had a vastly bigger manufacturing base compared to the rump we have now. By repeating this falsehood over and over again is hubristic in the extreme. Stop it NOW. As for the pound all bets are off. It's going south for the forseeable future whoever wins the election. As for QE don't get me started. IDIOTS.

  • Comment number 6.

    How did this happen to the Pound ?

    The BBC's Matt Slater over at Matt Slater Blog, in a slightly different context stated

    Q: OK then, how did that happen?

    A: How long have you got? The short answer is a shocking disregard for basic housekeeping: do not spend more money than you actually have. xxx have been ignoring this one for at least four years.

    The slightly longer answer is appalling mismanagement, combined with an arrogant belief that the usual rules do not apply, naked greed and a failure on the part of the authorities to regulate the industry properly.

    Some will want to add corruption to this cocktail (and I may, one day, be able to say something about this), but if we are going to go down that road we should also remember our own guilt as co-conspirators: we have all demanded more "ambition" from our yyy but have rarely cared about the cost.

    OK, replace xxx with Portsmouth instead of the UK, and yyy with clubs instead of country.

    But is there really that much difference between the management of our Currency and Country and the management of Portsmouth football club ?

  • Comment number 7.

    Always helpful to hear about a one-way trade post the event...

  • Comment number 8.

    Rumour has it that the Financial Times are more likely to endorse Labour than the Conservatives. The economy drives everthing else so whoever the FT plump for will get my vote.

  • Comment number 9.

    Stephanie, what,if anything, would persuade the markets that the pound should become stronger and is the weaker pound such a bad thing anyway?

  • Comment number 10.

    This uncertainty was inevitable because UK is part of STUPID (Spain, Turkey, UIK, Portugal, Italy and Dubai) - the countries that got taken by the American hitmen – better know as derviative gamblers or hedgers.
    Now would be a good time to call a EU Financial Summit.
    Talk about what American derivative gambling has done and is doing to the EURO and the entire European Economy.
    Talk about how to isolate and resolve the derivative boon-boggle. Work together and you will see the Americans will get very, very nervous.
    Yes, interest rates will stay low.
    No, the inflation rate will not stay low.
    You cannot know what factor(s) is pushing the pound down, but you can be sure that American hedging is involved. You need to know how to boot these guys out of Europe once and for good.
    (Have you forgotten the example of George Soros and what he once did to make the British pound drop like the proverbial stone?)

    It turns out that 7 of the 10 most ambitious programmes of budget cuts in the Organisation for Economic Co-operation & Development in the last 40 years have been achieved by coalition governments. Yes exactly, and the coalition should be EU.
    Why are you EU countries trying to fix your finances on your own? Do you not believe that two heads are better than one? Do you really think you’ve identified the true problem(s) and that you know what to do about them?
    Whatever George Osborne may do, he cannot combat the American derivative gambling which is continuing to slither into the UK like some cancerous tumor.
    I love this statement: Osborne didn’t say “Vote for us and vote for a lower pound". But last year his staff were keen to point journalists in the direction of an article by a Goldman Sachs economist, Ben Broadbent, making the argument that tighter fiscal policy need not hurt UK growth. Jumping Johosephat, please don’t tell me that anyone in UK politics is taking advice for the gambling hitmen at Goldman Sachs.
    Please, the EU must come together.
    Define the real problem.
    Come to a uniform plan of action to get rid of those cancerous American derivatives and provide (over time) a healthy, clean EU economy.

  • Comment number 11.

    The situation is that the more that people learn as to what is actually going on in the UK economy the less they are prepared to put their money into it. The simple fact is that rather than looking for a return on their money they just want their money returned.

    We have a dysfunctional government with a policy of whistling in the dark at the same time as frightening anyone who cares to listen that if the don't vote Labour then we are all doomed to a world of Tory cuts whilst at the same time implementing their own stealth cuts which are quite acceptable as they are really efficiency savings.

    There is no policy to get the country back on course; not in the government and not in any opposition party. The recession is the elephant in the room, the size of the fiscal debt is too big to speak about in front of the children so they all conspire to squabble about something else.

    What is needed is the hard smack of firm government. This is known as leadership. Seen any lately? There are lots of folk telling you they are in charge and drawing an in-charge size salary but nobody is actually in control or trying to be in control.

    The bottom line, Stephanie, is would you invest in sterling today? No, you wouldn't. You would go away and come back for a look after the General Election wouldn't you? This issue is about a pending change in government which is by no means assured.

  • Comment number 12.

    The pound [of sterling silver?] is a one way bet. When we hit Euro parity might as well join.

  • Comment number 13.

    Today's movements in the currency markets are certainly unusually large. Of course one should always be cautious about one day moves which could change. However having read your analysis of the situation I prefer the report from notayesmanseconomics web blog which I read much earlier in the day which brought our rising gilt yields and falling currency under the themes he has been analysing for some time.
    He also avoids politics whereas sadly your views come clearly through your analysis as it is quite plain what has changed over the weekend and what therefore is mostly likely to have caused today's events.
    I notice that last weeks economic news is now "dire" which is not what you said at the time...

  • Comment number 14.

    Don't worry - that 'fragile recovery' as identified by the BBC, will pull us out of 'McBully's mire'?

  • Comment number 15.

    Hi Stephanie,
    Dont know who Giles Wilkes is, nor who CentreForum are. I would recommend you and your contributors read his commetary on QE for a view - how it has doled out liquidity and profitability to the City and high finance and failed to help the many who will pay for it - how it should be re-geared and re-targeted to the real economy- how it is unaccountable and is unaudited in its effects and obscure as to the identity of its beneficiaries.

    Not quite sure why a plunging pound is quite the good news the Conservatives think it is. I heard a publisher's FD this morning say how a falling pound helped his company better its margin - but how many other margins are pressured through dependency on dollar-pricing and imports?

  • Comment number 16.


    You seem to want rational markets!

    "It turns out that seven of the 10 most ambitious programmes of budget cuts in the Organisation for Economic Co-operation and Development in the last 40 years have been achieved by coalition governments."

    This is why I have been banging on about the need for a National Government for the last year - so that the proper economic actions can be taken freed from the party politics of Tweedledum and Tweedledee! (Our two Tory parties).

  • Comment number 17.

    Stephanie - of all the points you made you missed a big one. There are a record number of short hedges against sterling brought on by the economic mismanagement. So you're right in one sense

    The question should be - why have we managed to get into a situation whereby the pound is a one-way bet and that we are at the mercy of the markets. It's not clever and its not big either. But there's enough stupid people about I guess (now upto 35%). Hey why not tax stupidity - we could raise a fortune in this country?

    There are similar overtones to the ERM debacle of 92 - but at least the principle was trying to be economically prudent though the execution was wrong.

    This time around its just complete incompetence anyway you look at it from an economic standpoint.

    I just wish you would be critical of the current government more rather than effectively airbrushing over their current incompetence.

    You also failed to cite that a returned Labour government would be a one-way bet downwards fullstop.

    A conservative government would see a short-term dip before an upward curve as the conomy would become more balanced in the near-term. But we've been here before, haven't we? A failing Labour administration leaving the country bankrupt having to be rescued by an incoming Conservative one.

    Even a hung parliament scenario would be fairly short-term thoigh it would do more damage short-term (we've been there before also haven't we?) but eventually would lead to an overall majority.

    Coalition governments don't have a good record in the UK and we need to be careful in making sweeping statements about said coalitions in other countries.

    Anyway back to that stupidity tax? Any takers........

  • Comment number 18.

    If Labour win the pound will collapse as it is only being held up by the prospects of a Conservative win. Labour will increase debt and we will be the new Greece. Goodbye Summer holiday.

  • Comment number 19.

    Despite what some people would preach - in the long run, the market doesn't lie. Given an efficient market, and the FX market is quite efficient, prices have all the information. In short, the market is reacting to the complete lack of a credible plan to reduce the UK's structural deficit - something that no major policial party has even acknowledged. Until someone switches on to the fact that the UK economy is not going to be as big as it was pre-crisis, there is no way to address the deficit and no way to reduce our national debt. And until then, there is no reason to support a stronger sterling.

  • Comment number 20.

    Calm debate is better than shrill panic. But the calm debate should've happened in 2008. It didn't, and so the three way grip on Britain's destiny reads like this:
    1. Rising cost of borrowing
    2. Falling credit rating
    3. Rising cost of maintaining debt
    4. See 1
    5. Bankruptcy.

    This is a pivotal moment for David Cameron's Tory Party: it either tells people the truth - that a harsh recession is preferable to national bankruptcy - or it shilly-shallies again and goes for more pain-avoidance.

    There are no other choices on the table. The markets, dealers and credit agencies are waiting for us to show them which route we're going down. If we choose the wrong one, then the market will decide....and New Labour will deliver us into the hands of the financial madmen.

  • Comment number 21.

    All very technical, the reality is that the pound has gone down because of the mess we are in. If we weren't in that mess we wouldn't be having erudite discussions as to how we get out. Who put us there? Old Boom and Bust Brown.

  • Comment number 22.

    Down ?
    Things look very frothy, and most shaky underneath.

    But then I would say that wouldn't I !

  • Comment number 23.

    Given the alternatives, the prospect of Vince Cable being able to influence a Chancellor is perhaps the best option we have. Undoubtedly, people I know who are not Lib Dem voters remark that they trust him in a way that they don't trust other politicians.

    The only fault I can find with your analysis is the suggestion that the majority of traders follow any logical approach at all. I suspect they are actually as fickle as the rest of us.

  • Comment number 24.

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

  • Comment number 25.

    Ah, so the boys in the crrency markets have decided to make a move on the poor old pound. The only surprise is that it has taken them so long.

    However, it is a clear demonstration of the falsehood of the 'expert' commoditiy markets. These guys are not making their moves on the latest GDP adjustments, the latest inflation figures, or even the comments of the BoE. We are way beyond any of that now. The assumptions that underpin the models are no longer valid. The old bellweather indicators no longer work. They are in fact fishing in the dark and can't see the float!. Hence the latest bit of gossip will panic them into a herd response.

    The only satisfaction in all of this is that having shaved 50p's worth of flesh (we don't have £'s worth anymore) we can expect them to move on and scavenge off the Euro and $. We might even wave them goodbye as they plummet to even lower comparative levels - after all they will have got the taste!

  • Comment number 26.

    If you are linking the value of the pound to politics, then would it not be better to show poll results for the political parties vs the pound (against USD or EUR)? Then you could see if any swings in the value of the pound had any correlation with swings in the party polls.

    Otherwise, isn't this just guess work. E.g. you might as well argue that the pound dropped because it rained this weekend!

  • Comment number 27.

    Maybe the pound is going down because the BOE are going to start up the printing press again. It looks more likely by the day.

  • Comment number 28.

    A sad but depressingly accurate view of the pounds prospects. We're emmigrating to Canada and the approaching CA1.5/£1 35year low fills me with dread and our standard of living. However it doesn't scare me as much as another term for Mr Brown and his ability to wreck this country for those who strive for what they want to achieve rather than sit and expect. A dependant nation, Brown's legacy.

  • Comment number 29.

    Get ready for massive inflation!
    Is it now patriotic duty to vote conservative for the good of the country?

  • Comment number 30.


    Today's movements have nothing to do with the upcoming election. That is merely a conspiracy to ensure one party has a majority Government. This makes their lives easier as they are able to force through measures which debate would oust as being draconian and unfair.

    The markets are merely winding up for the 'grand finale' when they start bringing down nations.

    "And Jehovah proceeded to go down to see the city and the tower that the sons of men had built........That is why its name was called Ba′bel, because there Jehovah had confused the language of all the earth, and Jehovah had scattered them from there over all the surface of the earth."

  • Comment number 31.

    So according to the above it is not the prospect of hung parliament, not the prospect of a labour government that has spooked the markets. So I look forward to the pound surging in value if the opinion polls move further in labours favour and an outright labour majority is confirmed. Hmmmmmmm

  • Comment number 32.

    May be it's nothing to do with politics.

    May be it's the likelihood that the BOE is close to announcing more QE.

  • Comment number 33.

    #8 Fairpolitic:
    The economy is truly very important and therefore you should make your own informed decision based on a balance of opinions from different resources to make up your mind. Relying just the FT may not be enough in all situations.

  • Comment number 34.

    The safest thing when the gamblers start is to put your money under the bed!!

  • Comment number 35.

    #1 - I think you make a good point about destabilsation, but the breakup of the UK is not really something that would bother me unduly.

    The danger is that the nationalist parties will be cleverer than that.

    Why would you want independence when you've got the govt of the whole country exactly where you want them?

    If you want an example look to Spain - the Catalan parties demand what they want - hence all industry, new investment, etc is in Cataluyna - to the detrement of regions that do not have well organised regionalist parties.

    So bad luck to the West Midlands & the North

  • Comment number 36.

    Every time the Labourites get in it's the same. Wilson "The pond in your pocket ......" Callaghan "Winter of discontent ....." And now we have the worst of all worlds. A Scottish Labour Prime Minister who is a control freak.

  • Comment number 37.

    The capitalist class trying to dictate political matters but this really is just a bit too obvious, even for them.

  • Comment number 38.

    I keep bangin' my fists on the table time and time again. I told you so the country has no recent experience of a "hung" parliament and the consequences as seen overseas. If one has savings in sterling; do nothing. Wait some time (if one can wait) til an upswing occurs. It will eventually come after the election fever has settled down.
    It must;
    Can a industrial and socially well intellectual country like the UK, amongst the top 6 be seem to permanently founder ? No.

  • Comment number 39.

    There is a widespread myth (often repeated in comments here) that the UK manufacturing sector has shrunk to a "rump" and therefore export led growth is impossible.
    It is true that the industrial sector only accounts for around 17% of GDP compared to over 30% in the 1970s - but this is largely because the total economy has grown substantially (more than doubled) since the seventies. UK manufacturing output has remained fairly constant. Even President Sarkozy was forced to admit that the annual value of British manufacturing output still exceeds that of France after he rashly claimed the opposite in a live debate on French TV late last year.

  • Comment number 40.

    Good grief!

    That chat with Huw Edwards was so fast that I am amazed he didn't put your overcoat on you and shove you out the studio door - the climategate journalist, also an important story, got more air time as did the weather presenter who followed him.

    I was hoping for some of your good analysis about why the Pound was falling, some expansion on it re the hung Parliament, falling mortgages, etc, etc, and it was just so rushed.

    Why does he do that?

  • Comment number 41.

    What we may be missing is the conundrum: why aren’t Bond markets reacting to British political uncertainties?
    For a start, it's not the case that there's no causal connection between hung parliaments and burgeoning debts. What is true is that the received wisdom last time there was a hung parliament (derived from faulty analyses of the Philips curve), was that there was a positive causal connection between tolerating modest inflation and the growth of GDP and jobs. The outcome of the '70s confirmed the contrary observation: inflation fuelled by fast growing debt was the enemy of jobs, not their saviour.
    All the main parties accept that understanding now. So we're unlikely to revert to that muddled thinking.
    What's truly remarkable right now, is that no one in the markets seems to be listening to the central Conservative argument!
    Osborne insists that government debts must be re-paid quickly to avoid a steep rise in long-term interest and mortgage rates. I.E., like the huge rises we had under the last Conservative government - and especially the whooping interest rates whilst David Cameron was an advisor to the Chancellor of the Exchequer. He's correct: we don't want that again!
    And you're right Stephanie, markets don't like political uncertainty. So why don't markets signal that they foresee rising interest rates on government bonds?
    Surely it can't be that they don't believe Osborne & Cameron? Or is it that they are indifferent to an imminent change in parliamentary majorities?

  • Comment number 42.

    I thought that the problems in the banking industry were caused by the banks taking risks not the governments around the world. Or is that history being re-written by the winners with all the cash?

    And as for this country having a hung parliament... why not? maybe then decisions would be made for the good of the country, now and in the future, as well as the voters not on party political grounds.

    After all a change is as good as a rest.

  • Comment number 43.

    I think its obvious everything will be done to keep rates down however reckless the long term effect of that is. I like the way they want to encourage savings but also ensure interest rates don't go up, how does that work then? It's just more of the same irresponsibility which got us in this mess in the first place. No-one ever seems to learn the lessons of the past even when the warnings are flashing bright red.

  • Comment number 44.

    The British Pound is trading at US Dollar £1.51 and Euros £1.10. Most people in Wall St would regard the Pound rate vs the Dollar to be about right.
    Both rates are above the lowest £ valuations of the past 12 months. The US Dollar remains depressed vs the Euro - which is the biggest currency trade - and causing the £ rate against the Euro to be somewhat below a sustainable trading rate.
    Not much evidence here of significant worries on the currency markets.

  • Comment number 45.

    It's incredibly simple... borrowing for consumption rather than investment is only acceptable for individuals, businesses and countries as a short term measure. Anyone doing it longer term is insolvent.

    Putting it bluntly, we are on the verge of insolvency, and only because as a country we can fiddle figures and put off certain payments (like our pension liabilities) are we able to fudge things today so that at least in terms of cash-flow we are solvent (i.e. can pay bills today).

  • Comment number 46.

    #17. But there's enough stupid people about I guess (now upto 35%). Hey why not tax stupidity - we could raise a fortune in this country?

    I like the idea... lets rig everyone up to a lie detector machine, and anyone who voted for labour last time, and doubly anyone who votes for them this time, get to pay a special Brown tax.

    Oh well, if only!

  • Comment number 47.

    So after the big bail-out scam the economists and their lackeys the politicians are now harassing us to vote for a certain party or otherwise the pound will become worthless?

    Democracy has finally been replaced by plutocracy.

  • Comment number 48.

    Don't get youselves so worked up about a minority government. All your new PM will need to do is book an appointment with Stephen Harper,(Canada's PM) and he'll tell them how to do it. He's not only been doing it here for over four years but in the process he has made Canada one of the most successful countries in the West. Heck, we just even whapped you all in sport.

  • Comment number 49.

    I wouldn't count any chickens just yet. Labour keeps talking about their supposed recovery - driven by the private sector.
    Most people high in the private sector I've spoken to are only STILL here because they're holding out for a Conservative election victory.
    How will the pound be effected by the spontaneous emigration of a few hundred large Plc.'s? The sudden cheapness and availability of office space in the City?

  • Comment number 50.

    The US and UK both declared after bailing out the banks that the recovery was in order. Now many months later we find that the collapse continues and banks are making a lot of money while the governments remain on thin ice. Lesson: never trust the banks.
    Neither side seems to have a workable plan and the banks stand ready to "lend" the governments money. It is time to change the system of international and national finance, this simply does not work. It works for the bankers, but no one else and any system that clearly only benefits a single industry and at the detriment of a nation should be changed. The banks have convinced everyone that some creator has made them a part of the master plan and therefore they must remain unregulated. Shake this tree as much as you like but the bankers took all the fruit. The problems are not over and standing still is not working. Corruption of governments by big business and banking has caused the problems and until that issue is faced very directly everyone can expect a repeat of these performances.

  • Comment number 51.

    41. At 5:39pm on 01 Mar 2010, leftie wrote:
    And you're right Stephanie, markets don't like political uncertainty. So why don't markets signal that they foresee rising interest rates on government bonds?

    I'm no expert on the bond market but I thought yields on 10 year govt bonds had gone up from 3.57% to 3.99% over the last year. Surely that indicates a reaction from the bond market.

    I assume the expectation of further QE has also kept demand up for gilts.
    and so kept rates down.

    At this point i'd like someone who knows what they are talking about to come and explain to me the significance of the yield curve in this analysis

  • Comment number 52.


    I think you will find that you are mistaken

    Pimco's head, Mohamed El-Erian, told the BBC World Service that the UK's creditors would become "significantly concerned" if the UK did not cut spending and grow quickly.

    Pimco have influence in the bond markets

    Mervyn King also supported Osbourne's view, so far as he is able

    I would get back to blaming it all on Maggie if I were you!

  • Comment number 53.

    There is no upside to this, even if you argue that coalition goverments can agree to strict fiscal policies it doesn't make the UK situation any less uncertain as we won't even know who the main players are until probably after May 6th. As you say, the markets hate uncertainty.

    The other explanation is that they have had a whiff of a Labour win and are running scared of that, I have seen at least one quote to this effect and to be fair they are right to worry that Gordon Brown could be a leopard unable to change his spots.

    The truth is that a hung Parliament, or even extended speculation for one will an mean increased cost of raising government revenues later in the year and much higher interest rates. In effect our uncertainty over who we want to run the country will lead to higher cost for mortgages. Maybe we should hate uncertainty too.

  • Comment number 54.

    That's all well and good, but we don't have much of a manufacturing base to work with so what are we going to export? Net exports actually declined in the last year despite our best attempts to depreciate the pound.

    Plus you can't just export at the switch of a button export growth requires time and investment, the idea that this will give us a competitive advantage over other exporters is ludicrous and demonstrates politicians inability to take account of the wider market.

    Oh and did someone say Vince Cable for Chancellor?!... we might as well start printing croissants and eating euros.

  • Comment number 55.

    Ain't it interesting that all of the usual 'Righties' have been back on claiming gloom and doom caused by the government and wailing that "it's the end" if they are re-elected. It's so predictably fallacious. One could almost join their neurosis and claim that what we are seeing on this blog is actually covert electioneering but, of course one wouldn't.

    All this angst based upon 1 day's trading is just pathetic! The Forex boys are in a mess that is the plain and simple truth. Their present movements have little to do with economic analysis - precuious little has changed in the economic environment. So they turn to the political environment and find there an excuse to create some movement. What they desperately need is the ability to move money faster and faster so that it creates the impression of value. The reason for that movement has lttle to do with political or economic reality.

    Now if we can ever find a group of people who are prepared to forward a dramatically innovative strategy based upon clear political and economic thinking then watch the Forex boys and the rest of the financiers panic when the light of truth exposes their gothic machinations. One thing for sure is that neither Labour nor Tory policies constitute more than a mere a fire-fly's glow in their direction.

  • Comment number 56.

    Im no economist, but the prospect of a hung parliament excites me.

    We have had the last 13 years of a government with an untouchable majority. Before that we had a similar experience with a different colour.

    Our country cannot continue in this way.

    A hung parliament may not provide much comfort in the short term for economists, but for the rest of is it may mean proper debate, discussion and scrutiny of laws and no steamrollering of things that affect our lives.

    Of course, I'd love to have a strong intelligent government that was more interested in doing the right thing... but when is that likely to happen!

  • Comment number 57.

    Who is going to looking after Joe public, the future certainly looks bleak not only have interest rates gone to almost nothing, that wealth was needed to save the economy ? now devaluation reducing the purchasing power of our hard earned savings,if we can only create infation as well this will regenerate the economy by reducing the worth savings even more, together with spending cuts what a happy future ? whoever gets in! is worth a vote ?

  • Comment number 58.

    #49 tonb123,

    "Most people high in the private sector I've spoken to are only STILL here because they're holding out for a Conservative election victory."

    Is that because the Tories will allow them to carry on making such a cock-up? Those 'high in the private sector' have already proved themselves to be self-serving and either grossely inefficient or ineffective.

    My justification for the above comment? Well, the highest of the high in the private sector have been in financial services and they fit my description accurately. As for the other 'captains' of commerce and industry, with very few exceptions they have not performed particularly well.

  • Comment number 59.

    It would seem to me, as we live in a partially capitalist economy, Stephanie is giving us a big hint. Short Sterling and become another Soros. There's money to be made so why gnash your teeth propogating Socialist dogma, get down to your money broker, bet the ranch against Sterling and give your house to your Cleaner when you clean up!

  • Comment number 60.

    46. At 6:14pm on 01 Mar 2010, jonearle wrote:

    I like the idea... lets rig everyone up to a lie detector machine, and anyone who voted for labour last time, and doubly anyone who votes for them this time, get to pay a special Brown tax.

    Poeple on Benefits don't pay tax

  • Comment number 61.

    We also have to remember that due to Labour's additional taxes on the oil and gas industry and the low levels of exploration here then the pound can no longer be considered a petro currency.

  • Comment number 62.


    What prejudiced, generalist drivel...

  • Comment number 63.

    Buy gold, the only currency you can't print more of.

  • Comment number 64.

    60 nogreenshootshere

    No but benefits can be reduced. It would be good wouldn't it if we brought in a rule stating that anybody receiving benefits/tax credits could not vote for the incumbent government - I wonder if we see anything different like actually resolving the problem?

  • Comment number 65.

    I think the Pound is falling because the Conservative's fall in the polls makes a Labour victory look more likely. With 5 more years, Labour will print money Zimbabwe-style until the Pound implodes.

  • Comment number 66.

    I'm not sure, we should link market movement with any real ability of any party to change Britain. I mean in 2010, do we really, honestly think Labour or the Conservatives really have the best long term interests of our country at heart? 26 years of bipolar party political messing about with the UK, should really have opened our eyes.

    After all the market collapse, we were all talking about how the markets are not at all rational, and were basically moving to create money from hedging. Does anybody really think that the markets have suddenly now got wise again and are performing rationally?

    The men with money need to make more money. They can't do it with a static market, so the market needs to move. Currency movements make lots of money very quickly. All you need to do is let it rise 3% (1.55 to 1.59) on some "hope" basis, then hedge for 6% drop over the nominal (1.59 to 1.50), spread some "doom" rumours, and you've made nominally 6% return in a few days. Easy when you've got the money, and can spread the wispers through the city.

    A truly rational market would be very slowly dropping sterling (and the dollar & Euro) over the asian currencies, not bouncing up and down.

    It's pure financial greedy speculation

  • Comment number 67.

    "A weak currency is the sign of a weak economy,which is the sign of a weak government"

    Gordon Brown, 1995

  • Comment number 68.

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

  • Comment number 69.

    To poster number 28, will you be emigrating to Canada to work over there or are you already retired?

    I am looking into the possibility of doing the same & wouldnt knowing how you are going about it.


  • Comment number 70.

    Not seen it mentioned here so far but as the pound drops and commodity prices firm higher(oil and copper especially), then everything we import becomes more expensive. As long as wages don't inflate rapidly, then the majority of folk are left in a deflationary situation of having less money to spend after car fuel and food. They will have even less after McBully's budget. Hence, no consumer led spending and no government spending unless QE comes back. If you think the FX boys have done any damage today, wait until the bond vigilantes get going. At which point, interest rates rise and mortgage holders will have even less at their disposal. We can either choose to go the Greek or Irish route to getting our finances back in order. Doing nothing is not an option. A hung parliament will only mean that political parties will ensure that another gets the blame and we have to be burdened with cost of another election in 6 months time, whilst the electorate suffer. The economy is too important to leave to incompetent politicians. GB + GB = GB + GB or Great Britain plus Gordon Brown equals Gone Broke and GoodBye.

  • Comment number 71.

    63. At 8:26pm on 01 Mar 2010, Political_Incorrect wrote:
    Buy gold, the only currency you can't print more of.

    Damn ,where did that Potter boy put the Philosopher's stone?

  • Comment number 72.

    Something is disturbing.

    We know that the GDP calculations have been opened up to raise fairly significant doubts about how real they are and the fact that reported inflation is actually quite different from reality.

    Also an interesting fact that about 30% of Greece's official GDP (whatever that means) is estimated to be black market.

    Ours is reckoned to be about 12% but I think this is a fair under-estimate.

    So what if our GDP is actually lower than recorded?
    What if inflation is indeed higher than reported?
    What if our black economy is higher than we think?

    When a Government's finances are in trouble - normally lower estimates of the first two and higher of the last one are probably correct - a collation of objective and independent evidence (unfortunately that rules out the BBC) will provide the answer.

    If it is the case - we could be far more of a serious hole than people are being led to believe.

    Maybe there is a case for hanging to brought back.........

  • Comment number 73.

    The Election will make no difference until the bloated overpaid public sector has been cut the UK will continue to decline.
    These people have got to be told that their salary's are dependent on what the private sector tax payers can afford to pay them, the UK government can not continue to borrow and print money to pay these greedy Civil Servants etc.

    Who evers running the Country will have to bite the bullit and tell them before we all go bust paying them.

  • Comment number 74.

    58 Missinmastmissingdave
    Is that because the Tories will allow them to carry on making such a cock-up?

    Who is in power, who was responsible for the economy for the last 13 years?
    If you read any money magazine in the mid noughties, everyone said this can't go on. Why didn't the powers that be rein in the economy? Because it didn't suit them (tax and spend) and they were too stupid. It wasn't the Conservatives FDD!

  • Comment number 75.

    3. At 21:26 pm on 1 Mar 2010, shaun-127 wrote:
    Poster No. 42, wrote:

    I thought that the problems in the banking industry were caused by the banks taking risks not the governments around the world. Or is that history being re-written by the winners with all the cash?

    As somebody who has studied ecomonics at university and studies history it is interesting to see how those with money and power, albeit after a short period of collective shock; when the reality of their actions were too evident to ignore or disguise through ill-founded argument, are managing to re-write recent history from the top down. The surprising part is that, other than the ideologically blind who are oblivious to reasoned argument, the electorate appear to be not so easily re-programmed.

    Though, it must be noted, the process of re-writing is constant and near relentless. Perhaps when the Tories have replaced the BBC's web presence with that of Rupert Murdoch's media empire the process will be both easier and quicker.

  • Comment number 76.


    You seem to be redefining the English language..No idea what you are talking about

  • Comment number 77.

    A solution to this crisis can not be found by any national government on its own; the truth is in global.

  • Comment number 78.

    67. At 8:52pm on 01 Mar 2010, Mog_X34 wrote:

    "A weak currency is the sign of a weak economy,which is the sign of a weak government"

    Gordon Brown, 1995


    Massive! Well done!

  • Comment number 79.

    #17 RugbyProf

    "You also failed to cite that a returned Labour government would be a one-way bet downwards fullstop.

    A conservative government would see a short-term dip before an upward curve as the conomy would become more balanced in the near-term. But we've been here before, haven't we? A failing Labour administration leaving the country bankrupt having to be rescued by an incoming Conservative one.

    Even a hung parliament scenario would be fairly short-term thoigh it would do more damage short-term (we've been there before also haven't we?) but eventually would lead to an overall majority."

    I'm politically ambivalent, so with caveats posted on that front I would be interested how anyone can assume that a Conservative government are going to see a "short-term dip" before we become "more balanced in the near-term". This is just wishful thinking and rhetoric. It's also an incredible naivety of faith that any elected body can sort out the mess we're in just by being no worse than the current incumbents.

    No matter who gets elected it matters not, the country is bust. Unless that is addressed immediately, then no amount of fannying about with bi-partisan "He said this, He said that" politics is going to resolve it. This is a crisis unseen for 70 years and we're now a nation of selfish oafs, up to our ears in debt, who couldn't care less about anyone else.

    I honestly think that a hung-parliament would be the best for this country as it will take co-operation to resolve the situation we're in, not a singular party talking about either tax-cuts for the rich or throwing millions more at bloated banks.

    If one is to believe that the conservatives will see a "short-dip" then it's disconcerting that this is an accepted belief. Where is the growth going to come from ? What practical ideas have the Tories got ? I'd love to believe it, but so far it's hot-air and smarm. Perhaps marginally better than Broon, but either option leaves the vast majority of the electorate cold.

    Maybe we should tax anyone who decided to vote for any party under your "Idiot-Tax" ruling. That way we would actually get the 30-40% you suggest. Under your idea, we'd only get 35% of the idiots, or 10-12% of the population.

  • Comment number 80.

    Now I might have missed something but my reading of the weekend Conservative Spring Conference was that it stuck to the warm pink and fluffy and kept well clear of anything that might be in the category of "pas devant les enfants".

    As a voter it did not fill me with confidence (and my voting preference is Conservative despite their lack of backbone in putting the EU in its place) so it is perhaps hardly surprising that les eminences gris in the money markets weren't overly impressed either. Perhaps DC has decided this election would be better left unwon.

  • Comment number 81.

    Hmmm. Another reason for today's wobble in the pound might just be the Pru selling shed loads of sterling in the market to buy part of AIG. It might be nothing to do with political uncertainties at all.

  • Comment number 82.

    The GBP is in big trouble - it has very little to do with British politics and a lot to do with British debt.

    Who cares who wins any election, no-one is going to cut sufficiently to impact on the debt, for the simple reason that they cannot. The debt will keep rising and the GBP will implode. Big wow.

    So lets all buy Euros or Yen or US$. But guess what they are all burdened down with equally unsuportable debt and they are also going to implode. This is the end of a credit cycle, neither Labour, Tory or the Monster Raving Loony Party can do anything about it.

    Inviting comparisons between Brown and Cameron is simple misdirection, albeit misdirection on a gigantic scale. You want a comparison look to the Weimar Republic - soon to be writ large across the entire western world.

    There is no way out and no way back. It is simple.

    Rich people are buying farm land, gold, and guns. Why do you think that is? Maybe it is just an affectation, who could possibly know.

  • Comment number 83.

    55. foredeckdave wrote:
    Ain't it interesting that all of the usual 'Righties' have been back on claiming gloom and doom caused by the government and wailing that "it's the end" if they are re-elected.

    You should be careful how much you knock us "righties", as it sounds like you are one of the many that I'm working my socks off to support. And we are unable to take it any more. Go and create real wealth and maybe you'll have a bit more sympathy for those "on the right".

  • Comment number 84.

    #5 Rugbyprof,

    You really are an inane little person. You do not have a clue as to my identity or what my qualifications and business expeiences are. Your ramblings are therefore infantile and ill-informed.

    You may wish to leave the UK. That is your decision. However I do hope that on your journey to whatever beach you finally wash-up on you may learn to actually read before making silly comments. In my #58, I was replying to tomb123's #49 regarding "people high in the private sector". My reply therefore did not reference either you or SMEs by implication. That you could consider that it did merely displays your arrogance.

    That you cannot comprehend that the present capitalist model is broken and that no attempt has been made to fix it merely makes you a dullard. that you believe that electing a Tory government will ahieve that makes you a myopic dullard.

  • Comment number 85.

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

  • Comment number 86.

    #74 dont create ripples,

    If you go back to the original statement by tomb123, you will see that he/she/it was claiming that the top people in the private sector were only staying in the hope of a Conservative win. So my comments were made in the light of that statement.

    But, do you REALLY think it would have been any different with the blue rinse brigade rather than the pinkie luvies?

  • Comment number 87.

    #67 Mog_X34 Gets my vote too! Cameroon's machine will be delighted with you for this one.
    "A weak currency is the sign of a weak economy,which is the sign of a weak government"

    Gordon Brown, 1995
    I do, however think they will be a massive "Anything But Labour" turn out! Don't forget our Sun readers, they'll be told and hyped into booting GB to touch. Ask Mr. Murdoch. I'll wager the Tories coming out on top and they won't be a hung carcass.

  • Comment number 88.

    #82 Armagedion

    "Rich people are buying farm land, gold, and guns. Why do you think that is? Maybe it is just an affectation, who could possibly know."


    It's not just rich people. Land is a better asset than a pile of numbers sat on a computer. You can feed yourself off land. You can't eat paper (or numbers) no matter how nominally valuable it is.

    A Millionare on paper or an acre of land ? I know where I'd rather be if things go into meltdown.

  • Comment number 89.

    #83 jonearle,

    But it's all right for Righties to make comment about Lefies without challenge?

    I would refer you to my response to Rugbyprof regarding my status. Also go and learn about the true meaning of wealth before mouthing-off about real wealth creation.

  • Comment number 90.

    The Tories might well have signed their "death" warrant in adopting the slogan "Vote for change". Voters in my home country might be well advised to remember that Obama's oft-repeated campaign slogan was "Change", and it has become painfully obvious that every one of his promises for change have been broken in his first year in office. So be wary of promises for change - politicians' memories, once they are in office, have a habit of becoming rather hazy.

  • Comment number 91.

    #79 Nick

    The dip I refer to is in sterling not the economy. I'm well aware of the seriousness of the economic situation as many of my previous blog comments will testify.

    I'm being pragmatic in that we can't go on with this government fullstop.
    There is plenty of evidence to suggest a hung parliament will only result in a worse scenario.

    I'll have to take my chances with an incoming Conservative government which I take to be more than zero. The other two options are less than zero. Civil insurrection is not an option as much I would like it but recognise it solves nothing other than get rid of frustration......

  • Comment number 92.

    Stephanie - After seeing you on the 10 O'Clock News. I don't think the markets are worried about a hung parliament. They are more worried that DC is going to reveal the true state of our finances and they are taking a punt on this. There isn't really any other option for him. How else can he justify the cuts that he is cornered into. Unless, you don't think we've blown our (street-)credit limit?

  • Comment number 93.

    86 HoledbelowthewaterlineDave

    Sorry the Blue rinse brigade gave G McRuin a pretty good economic situation in 1997. In 2001 he opened up the money sluice gates. Having lived and worked through other Labour Governments my heart sank. I can tell you the Blue Rinse Brigade may not have foreseen the current wipeout (Kondratieff did though) but we would not have been in so much debt with Government overspending. That's the issue and always the difference between the great social levellers and those who want to create real wealth in the economy. If you want to distribute wealth (don't disagree with the proposition) EARN it first, don't squander it!

  • Comment number 94.

    buy commodities funds..protect your savings....while there is still hope...just

    I think the Conservatives will get back up to 40% soon...

    The budget will cause Labour problems, as the waverers will react badly to the cuts...

    It will also make Cameron seem more honest

  • Comment number 95.

    #91 RugbyProf

    I concur with your comments (and have read your previous blogs entries), so I do understand your point of view.

    My only issue is that with danger of a sterling collapse the options have been taken out of a Governments hands. We're at the mercy of sharks that go by the name of market forces.

    Perhaps my fear of total collapse is misguided, but hopefully we do have some cooler heads who can bring us through this situation. I just don't see another 5 years of polarisation as the answer.

    I suspect my gripe was the suggestion that a hung-parliament would be a disaster as I maintain that it could perhaps be the best outcome for the next few years. At the least there would perhaps be a modicum of debate rather than just flying off on some other misdirected scheme.

  • Comment number 96.


    From where I'm standing the capitalist model works just fine for all in our immediate circle of suppliers and clients. It's not broken. The problem is with government (both central and local) and the insane and ever-wanting of more tax that's the problem (and unsupervised regulation particularly derivatives that had many warnings preceding).

    Let's get one thing straight, as I have said before, in the UK there were two big banks that effectively failed, RBS and HBOS both with close links to the government and both Scottish in HQ location. They should have known better - but what price a knighthood eh?

    LloydsTSB is only here because the PM twisted Eric Daniels arm - he should have known better.

    HBOS, NR, B&B should have been allowed to go bust. Only RBS should have required funding for an immediate break up. Not the mess it now is.

    It's fashionable for everybody to jump on the bandwagon and blame banks as a collective. Hey - ignorant mob rules. CAPITALISM ISN'T DEAD. SOCIALIST GOVERNMENT IS DEAD. Period. Two post war goes. Twice the nation broke. If you haven't figured that out yet I can't help you.

    Also, why is it so difficult for so many to fend for themselves today? We're not in the middle ages are we? Why have we bred so many needy, unskilled and unmotivated people? Why do I have to support others when I can just support my immediate family.

    I've got no real desire to leave the UK because I love it but it has been sorely tested. I just don't identify with the value set at the moment nor accept anything this current government does/says etc.

    And before you ask - no I don't come from a privileged background. My grandfather was an irish immigrant, my father has been in that traditional of working class industries - contruction.

    As I said be careful of generalisations. You have no clue as to my qualifications or business experience either though at least I'm more forthcoming about reality. Your sneering and insults get you nowhere......

    Please - do tell me do you run a business and do you understand economics and enterprise and of course the basics of capitalism?

  • Comment number 97.

    A Millionare on paper or an acre of land ?

    Right now i'll settle for either :)

    But your probably right land is a man's soul as an Irishman once told me forget gold buy land

  • Comment number 98.

    #94 Kevinb,

    "It will also make Cameron seem more honest"

    Totally agree. Still doesn't make him honest though. Or are you trying to say that he is a singular politician?

  • Comment number 99.

    #95 Nick

    Agree with you that we're basically at the mercy of the markets (and we should have known the consequences well before we got to here.

    Understand your point about polarisation and I'd like to agree with you on the hung parliament but my recollection of the 70s one is the only real evidence I have and it doesn't augur well. Thus I weigh up the options - and yes they're all marginal but I see one more positive than the others.

    My other concern with a hung parliament is we would probably have another general election within 6-12 months after paralysis sets in (the downside of hung parliaments) but those months could be crucial in the interim, in terms of sterling, bond yields, inflation etc and the country's prospects.......

  • Comment number 100.

    Its so rare for economists to agree why any economic indicator goes up or down its almost pointless to speculate why an unquantifiable number of factors might or might not have contributed to an indicator changing up or down.

    The idea that financial traders in a global economy care about the result of UK election is equally fanciful. They all know that whoever wins will have to do far more to reduce the defecit than they will ever admit in public before election day. They are focussed on making a fast buck for themselves in the here and now.


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