George S. May Business Blog

British pound getting ‘pounded’ — talks of collapse ensue

As Britain’s government deficit climbs, many speculate that weak GDP growth (with no plan on the table for correction) will eventually lead to the collapse of the British pound.

The Times: Douglas McWilliams, the chief executive of the Centre for Economics and Business Research (cebr), said that the British economy was walking “five yards away from the edge of the cliff” and could be toppled by an “unexpected gust”.

The pound is trading at 1.10 against the euro after hitting a low of 1.02 a year ago. However, currency markets are reflecting the expectation of a win for the Conservatives in next year’s election, raising hopes of tougher action to tackle the deficit. Any signs of Labour closing the gap ahead of the election would result in the pound plunging, according to the cebr.

“If I had to bet, I would bet on the side of parity being broken,” said Mr McWilliams, adding that there was significant downside risk for the euro as a result of the divergent economic performances of countries such as Germany and Greece.

The good news is that the dollar is looking like a currency poster child in comparison, given the higher expected GDP growth in the U.S. and more relative credibility in the government’s ability to control spending in the longer term.

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