Brian Monteith: Blame the deficit as we take a pounding

Sterling's volatility is largely down to the UK's weak public finances. Picture: Justin Tallis/AFP/Getty
Sterling's volatility is largely down to the UK's weak public finances. Picture: Justin Tallis/AFP/Getty
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What’s going on with sterling? Why has it fallen so abruptly and is it something we should be worried about? Before considering the falling value in sterling we need to recognise the pound was overvalued immediately before the EU referendum as currency speculators believed the polls and establishment politicians and bought sterling, anticipating a “remain” vote.

They thought they could make a quick profit as markets, reacting to all the scaremongering by Chancellor Osborne and Governor Carney, breathed a sigh of relief and created a sellers’ market. This pushed the value up four per cent ahead of the vote, so when the “leave” result came as a surprise the fall of eight per cent seemed larger than it really was.

Since then sterling has zigzagged like Jimmy Johnstone on the wing; falling, then rallying, then falling and rallying again, but the trend has been downward, 16.6 per cent against the US dollar and 14.3 per cent against the euro. What we are missing is that this has been part of a longer-term adjustment over the last two years, losing 26 per cent against the dollar and 19 per cent against the euro.

What we cannot get away from is that the UK economy, although having some very strong indicators – rising employment, rising wages, continually low inflation, near zero interest rates, FTSE 100 at a high and continued economic growth – is still perilously close to a sudden catastrophe. The reason is not Brexit but the government’s continued deficit, the corresponding high level of public sector debt and the shocking balance of payments deficit (the worst in the developed world).

That the pound has fallen against the dollar should therefore be no surprise, that it has also fallen against the euro is nothing short of eccentric and suggests there are other forces at play.

The Government needs to be aware that there are many people on the markets keen to exploit any sign of its weakness and use “black ops” to manufacture a sudden fall that they can then exploit.

The Friday before a US holiday on a Monday always sees very low volumes in markets because traders are away, and Monday October 11 was Columbus Day holiday in the States. Low volumes allow traders to influence pricing and often happens on these days.

I have been assured that on October 6 a large dollar/sterling trade to sell the pound at a six per cent discount to the prevailing price was entered in Singapore forex markets, then cancelled. Trading computer algorithms picked up the highly discounted pricing, and started automatically selling – which in low volumes leads to price pressure.

Apparently a similar cancelled trade occurred in London on the Friday, keeping the momentum going.

By coincidence, or happenstance, corporatist pro-EU lobby groups were all over the airwaves on Friday morning predicting a sterling crisis and also announcing an open letter to PM saying the UK must stay in a single market. Funny that?

The weekend drop in sterling was called a “Flash Crash” and there has since been a sterling rally but I expect the volatility will continue because of the UK’s weak public finances.

To avoid being exposed to speculators and vested interests the Government has to be clear and consistent in not just its approach to Brexit but in its desire to control the deficit, thus reducing our debt.

Fortunately the lower pound will allow us to greatly improve our trade deficit by assisting export growth, as will leaving the single market – which gives a structural advantage to the rest of the EU – but by abandoning control of the deficit the new Chancellor is putting our economy in peril and must now reassure the markets if he is to stabilise sterling.

Princes Street’s shopping glory days are over

I MUST admit I nearly fell off my perch on the 26 bus last week as we ambled along Princes Street and I noticed the deceased British Homes Stores had risen from the ashes as none other than Scottish Home Stores.

Was it some bizarre retail coup de tartan tat, or did it signal the great shopping promenade returning to its former days of glory?

Sadly no. There’s little that genuinely Scottish about it, but if it means jobs for people and customers are happy then we should learn to live with it. That said, city planners need to recognise Princes Street’s future lies is its unique view and only by encouraging more buildings to change from shops to hotels and brasseries can we revive its reputation. The BHS site is indeed going to become a hotel and restaurant complex – and not a moment too soon.

A crash course in unpopularity

Is council transport leader Lesley Hinds a car crash waiting to happen? She’s certainly giving David Begg (remember him?) a run for his money in unpopularity.

Leith traders in Elm Row are quite right to protest about new plans she is pushing that will make vital deliveries to their businesses impossible between 7.30 and 9.30am. All so she can introduce segregated cycle lanes.

Cllr Hinds should get on her bike and go and see the traders herself face to face instead of hiding behind press statements that suggest she is listening to communities when patently she’s not.

Airport has a terminal case

Official figures report Edinburgh Airport’s passenger numbers soared by 11 per cent in September. No kidding! I went through it repeatedly on my travels in the last few months and it has now become one of the least likeable terminals to traverse in the UK – especially if you arrive by car. It’s simply too small and cramped. A victim of its own success, how long before a new terminal is announced? Just don’t give the project to Lesley Hinds.