By Peter Garnham
Published: January 21 2009 10:45 | Last updated: January 21 2009 16:07
The pound is a currency with no underpinning and should fall against the dollar and the euro, says Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Fund with George Soros.
He says his view reflects the UK’s dire economic situation: “It’s simple, the UK has nothing to sell.”
Mr Rogers says the two main pillars of support for sterling have been North Sea oil and the strength of the UK financial services sector, in particular, the City of London’s role.
But Mr Rogers says just as North Sea oil is running out, so London’s standing as a major financial centre is set to suffer.
“I don’t think there is a sound UK bank now, at least, if there is one I don’t know about it,” he says.
“The City of London is finished, the financial centre of the world is moving east. All the money is in Asia. Why would it go back to the west? You don’t need London,” says Mr Rogers.
Mr Rogers thinks the pound is more vulnerable than the dollar or the euro. He says the UK housing market is arguably in a worse state than that of the US, given pockets of strength in the US and prices that are sliding across the board in the UK.
Meanwhile, he says, the UK is in worse shape economically than the eurozone, where most countries are not big debtors and do not run huge trade deficits. “If the UK discovers more North Sea oil, I might change this view,” he says. “But I don’t see that happening.”
The controversial comments from the investor and author came as fresh evidence emerged that the UK’s economy is falling deeper into recession.
UK unemployment rose to its highest level since 1997 in the three months to November, while mortgage lending fell to a fresh record low in December.
New figures released on Wednesday also showed UK public finances were deteriorating. December’s budget deficit – tax receipts minus expenditure – totalled £11.4bn against a shortfall of £4bn a year earlier, partly because of the £20bn state recapitalisation of the Royal Bank of Scotland which swelled the government’s net cash requirement to £44.2bn.
The pound, which on Monday was trading as high as $1.4909 against the dollar, dropped to a low of $1.3713. This was its lowest level in more than seven years and just above the 23-year low of $1.3682 it hit in June 2001.
The pound recovered some ground to stand down 1.3 per cent at $1.3730 by late morning in New York.
Sterling also fell 1.1 per cent to £0.9370 against the euro and lost 3.8 per cent to a record low of Y120.16 against the yen.
Meanwhile, the minutes of the Bank of England’s January meeting did nothing to support sterling, showing that eight members of its nine-strong Monetary Policy Committee voted for a 50 basis point cut in interest rates with the one dissenter voting for a more aggressive 100 basis-point move.
The pound has fallen sharply this week, losing more than 7 per cent against the dollar, amid uncertainty over government attempts to bail out UK banks and fears of a creeping nationalisation of the sector.
Analysts said given the UK bank bail-out had failed to help lift investor sentiment, unorthodox monetary policy steps looked more likely from the Bank of England now that interest rates were approaching zero.
Indeed, this was underlined by comments from Mervyn King, governor of the Bank of England, who said that the UK economy was likely to shrink significantly in the first half of the year, and that policymakers needed to consider more than just using interest rates to stimulate demand.
Mr King said the Bank was set to start buying billions of pounds in high-grade corporate bonds within weeks to attempt to head off a deep recession.
Maurice Pomery at IDEAGlobal said the comments suggested UK interest rates were set to fall at least 50 basis points to 1 per cent at the Bank’s February meeting, and that now that buying of corporate bonds had been sanctioned, it raised the possibility of the central bank buying UK government debt at some point.
He said sterling was in trouble, despite the sharp slide already seen so far this week.
“The surprise is still to the downside and I fear that international investors maybe turning their back on the UK,” said Mr Pomery. “The whole structure of the UK and its global presence is at risk here in the longer run and sterling could see a loss of confidence not seen for many years.”