The Daily Telegraph
Barclays brands worries of 1970s currency crisis ‘scaremongering’
FEARS that the UK could suffer a 1970s-style currency crisis are “fairy tales” and “scaremongering”, Barclays has said.
In a report published yesterday, Themistoklis Fiotakis, the bank’s new head of foreign exchange research, said that deficit concerns raised by some rival banks are overblown as both Europe and the UK are dealing with the same spike in energy prices
“Crisis fairy tales aside, the extent to which sterling will depreciate versus the euro will clearly depend on the preferences of the central banks,” said the Barclays researcher.
The note is a tacit rebuke to rival Deutsche Bank, which last warned Britain’s deteriorating public finances put it at risk of a 1970s-style currency crisis, more commonly seen these days in developing economies.
“If investor confidence erodes further, this dynamic could become a selffulfilling balance of payments crisis whereby foreigners would refuse to fund the UK external deficit,” Deutsche Bank’s Shreyas Gopal, an FX strategist, wrote. “The UK is increasingly at risk of no longer attracting enough foreign capital to fund the external balance.
“If so, sterling would need to depreciate materially to close the gap in the external accounts. In other words, a currency crisis typically seen in emerging markets.”
Mr Fiotakis said: “Scaremongering of a coming UK balance of payment crisis misses the true macro story, in our view.”
Barclays forecasts the pound will trade around $1.17 (£1.00)in the third quarter, slightly higher than current level, before rebounding to $1.22 by the end of this year.
The sluggish British economy and the soaring cost of fuel has worried some economists that the UK will see more money leave its shores than come into the country.
The current account deficit – the difference between UK exports and imports – stood at a record 8.3pc of GDP in the first quarter of this year.
Economists are also concerned that Prime Minister Liz Truss’s energy bailout package, funded by massive government borrowing, could deter overseas investment in the UK.
It is estimated that the plan could cost taxpayers as much as £200bn over two years. UK borrowing costs have risen sharply in recent weeks in response to the plan.