“Sterling could fall much further and the fallout will be devastating” – reaction to fall in Pound

by | Sep 23, 2022

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As the pound slumps to new lows amid market turbulence, advisers and mortgage experts comment on what it might mean for the markets:

Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management: “If foreign investors lose confidence in the country, its government and economy, which is happening at scale, Sterling could fall much further and the fallout will be devastating. This will keep inflation higher for longer and growth lower. So far this year, Sterling has primarily fallen against the Dollar and this is because the greenback has been strong against all currencies. Unfortunately, as oil prices and other commodities are priced in Dollars, this keeps inflation high for us. However, Sterling has also fallen against the Euro this year, making our imports from Europe more expensive. All this is despite the UK having higher interest rates than Europe as higher rates attract savings and inflows into the currency. The UK has a trade deficit with the rest of the world, meaning it imports much more than it exports. It needs to attract capital to fund this gap and right now it is doing the exact opposite.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial: “It’s hard to believe economists are talking about Pound parity with the Dollar. This will severely impact importers, and we buy in a lot more than we export. A weak Pound has also put pressure on the gilt market, and 2-year borrowing is now at 4%. That’s compared to nearly zero a year ago. This means less money for public spending. This is a big gamble that has to pay off or we’re in big trouble.”

Marcus Wright, MD of independent mortgage broker, Bolton Business Finance: “The biggest problem with a weak Pound is the cost of imports, especially oil and energy imports. Most global trade in oil, gas and electricity is done in Dollars, so the falling Pound is going to make energy even more expensive than it already is. This is obviously the last thing we need and bad news for businesses. Unfortunately, the fact that weak Sterling makes our exports cheaper is massively overshadowed by the current energy crisis and the fact we run a trade deficit.”

 

Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “It’s getting very serious. Imports will become more expensive as Sterling tanks because a lot of our imports are denominated in Dollars. This will feed into higher inflation through rising costs, which the Bank of England is mandated to deal with. Put simply, it means more base rate hikes which feed into swap rate markets, ultimately ending up as higher mortgage rates. As I’ve already said it really is time to buckle up. It’s going to be one hell of a ride.”

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