CEBR warns that Pound could drop below Euro before the election
January 6, 2010
The U.K. Centre for Economics and Business Research has warned of the probability of the pound falling below the Euro before this year’s general election. They warned that the sterling crisis could come if Labour began to close the gap on the Tories in the opinion polls. The possibility of not having a government in power which is strongly committed to reducing the country’s deficit would cause concern in the markets. If the conservatives remain a long ahead in the polls then the crisis could be averted. The fears are not so much that Gordon Brown will retain power but that the possibility of a hung parliament in which no party would an overall majority would mean that the measures needed to sort out what is now a massive budget deficit would not be pushed through.
The CEBR has likened the pound and the Euro to a pair of untalented downhill skiers racing against each other. Earlier last year the Euro which is worth about 90 pence currently came close to being worth the same as the pound. If the pound does start to weaken against the Euro then it is probable that the price of imports will start to rise because of an increase in inflation.
For the rest of the world that CEBR has predicted that there will be little change in the levels of inflation and said that it would probably remain low. Low interest rates within the U.K. are also predicted to stay down and the price of houses will rise, but not by a very significant amount.
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