Biggest drop for sterling since '92
By Edmund Conway, Economics Editor
The pound suffered its weakest annual performance for 15 years in 2007, as markets bet that 2008 will be a miserable one for the British economy.
But despite the chaos caused by the credit squeeze, London's blue chip index the FTSE 100 has risen by 3.8pc since the start of 2007, along with a host of other equity markets around the world.
The sterling exchange rate index has weakened by 6.7pc in the past six months
Although sterling rose yesterday against other world currencies, it has fallen by 6.1pc in the past year, which is the biggest annual decline since 1992 - the year in which Britain was ejected from the European Exchange Rate Mechanism. The sterling exchange rate index, which compares the pound with a comprehensive basket of currencies, finished the year at 97.9, having weakened by 6.7pc in the past six months.
The currency's dramatic fall follows news earlier in December of a sudden doubling of the size of Britain's current account deficit, and comes amid growing speculation that the Bank of England will cut interest rates more aggressively than anticipated. Having risen above the $2.10 mark against the US dollar, the UK currency is now back at $2, and is expected eventually to drop to $1.80 or lower.
Economists fear the housing market slowdown could cause a recession in Britain. Experts at Dresdner Kleinwort put the chances of such an eventuality at 50-50.
Fears about the health of the UK economy were reflected in the relative performance of London's stock market indices during the year. The FTSE 100, which is a collection of multinationals spread across the world, finished the year at 6456.9, down 20 points yesterday.
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The FTSE 250, which consists of largely UK-focused companies, was 4.6pc lower than at the start of 2007, ending the year at 10,657, up 7.5 points yesterday.
In the US, the Dow Jones index of major American companies closed down 101 points at 13,264 - around 6.4pc higher than it started the year at - while the broader S&P500 index was up 3.5pc on the year.
However, while the performance of UK stocks has been mixed, the price of a wide range of commodities has continued to soar. Gold experienced its biggest yearly gain since 1979, within $10 of a record high, having touched $843.20 an ounce early yesterday. The precious metal, which is regarded as a safe haven for investors, has been pushed higher following the assassination of Benazir Bhutto in Pakistan last week. It has risen by more than 30pc this year -its rise also helped by the dollar's slide and the turmoil experienced by credit markets. While gold may soon surpass the 1979 record of $850, rises in inflation have meant this price is equal to just over $2,000 in today's money.
Germany's DAX ended the year up 22pc, while the CAC in Paris rose just 1.3pc. However, while shares in Western economies have struggled, the same cannot be said for those in emerging economies. The Shanghai Composite Index climbed 97pc on the year, the world's best performing major bourse for 2007. Japan's Nikkei 225 fell 11pc and the benchmark NZX-50 in New Zealand fell 0.3pc. Elsewhere, the Bombay's Sensex index jumped 47pc, Hong Kong's Hang Seng surged 39.3pc and Brazil's Bovespa rose 44pc.
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In theory depreciation of currency is good for industry as it will earn more money and thus help balance of payments, which is what happening in the USA, but here the industry is... about to be non-existant, so who the only good thing about this fall is that tourism might be more attractive.
By Edmund Conway, Economics Editor
The pound suffered its weakest annual performance for 15 years in 2007, as markets bet that 2008 will be a miserable one for the British economy.
But despite the chaos caused by the credit squeeze, London's blue chip index the FTSE 100 has risen by 3.8pc since the start of 2007, along with a host of other equity markets around the world.
The sterling exchange rate index has weakened by 6.7pc in the past six months
Although sterling rose yesterday against other world currencies, it has fallen by 6.1pc in the past year, which is the biggest annual decline since 1992 - the year in which Britain was ejected from the European Exchange Rate Mechanism. The sterling exchange rate index, which compares the pound with a comprehensive basket of currencies, finished the year at 97.9, having weakened by 6.7pc in the past six months.
The currency's dramatic fall follows news earlier in December of a sudden doubling of the size of Britain's current account deficit, and comes amid growing speculation that the Bank of England will cut interest rates more aggressively than anticipated. Having risen above the $2.10 mark against the US dollar, the UK currency is now back at $2, and is expected eventually to drop to $1.80 or lower.
Economists fear the housing market slowdown could cause a recession in Britain. Experts at Dresdner Kleinwort put the chances of such an eventuality at 50-50.
Fears about the health of the UK economy were reflected in the relative performance of London's stock market indices during the year. The FTSE 100, which is a collection of multinationals spread across the world, finished the year at 6456.9, down 20 points yesterday.
advertisement
The FTSE 250, which consists of largely UK-focused companies, was 4.6pc lower than at the start of 2007, ending the year at 10,657, up 7.5 points yesterday.
In the US, the Dow Jones index of major American companies closed down 101 points at 13,264 - around 6.4pc higher than it started the year at - while the broader S&P500 index was up 3.5pc on the year.
However, while the performance of UK stocks has been mixed, the price of a wide range of commodities has continued to soar. Gold experienced its biggest yearly gain since 1979, within $10 of a record high, having touched $843.20 an ounce early yesterday. The precious metal, which is regarded as a safe haven for investors, has been pushed higher following the assassination of Benazir Bhutto in Pakistan last week. It has risen by more than 30pc this year -its rise also helped by the dollar's slide and the turmoil experienced by credit markets. While gold may soon surpass the 1979 record of $850, rises in inflation have meant this price is equal to just over $2,000 in today's money.
Germany's DAX ended the year up 22pc, while the CAC in Paris rose just 1.3pc. However, while shares in Western economies have struggled, the same cannot be said for those in emerging economies. The Shanghai Composite Index climbed 97pc on the year, the world's best performing major bourse for 2007. Japan's Nikkei 225 fell 11pc and the benchmark NZX-50 in New Zealand fell 0.3pc. Elsewhere, the Bombay's Sensex index jumped 47pc, Hong Kong's Hang Seng surged 39.3pc and Brazil's Bovespa rose 44pc.
--
In theory depreciation of currency is good for industry as it will earn more money and thus help balance of payments, which is what happening in the USA, but here the industry is... about to be non-existant, so who the only good thing about this fall is that tourism might be more attractive.
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