The UK’s concentration in financial services has compounded the problems for its economy and currency.
Concerns over the global crisis remain the key driver in the foreign exchange market as investors witness the continued dete-rioration of economies around the industrialized world. In February, the British pound stabilized somewhat vs. the U.S. dollar after dramatic losses in recent months. Looking back to what seems now like a lifetime ago, in November 2007 the pound/dollar pair (GBP/USD) touched a high of $2.1159 (the highest price since 1981) and was still trading above $2.000 in July 2008 before plunging to a late-January 2009 low of $1.3500 (the lowest price since 1985), and more recently con-solidating in the $1.4100-1.5000 range.
The British economy was especially hard hit during the fall months thanks to the UK’s strong reliance on banking and other financial services. Citing data from the British Consular Office, Charmaine Buskas, senior economic strategist at TD Securities in Toronto says, “10.7 percent of UK gross domestic product (GDP) comes from financial services. It accounts for one in 30 jobs. They had the same troubles as everyone else, but amplified and magnified.” Like the U.S., the UK also suffered a crash in its over-leveraged housing market at the same time the global financial crisis began to hit.
Concerns over the global crisis remain the key driver in the foreign exchange market as investors witness the continued dete-rioration of economies around the industrialized world. In February, the British pound stabilized somewhat vs. the U.S. dollar after dramatic losses in recent months. Looking back to what seems now like a lifetime ago, in November 2007 the pound/dollar pair (GBP/USD) touched a high of $2.1159 (the highest price since 1981) and was still trading above $2.000 in July 2008 before plunging to a late-January 2009 low of $1.3500 (the lowest price since 1985), and more recently con-solidating in the $1.4100-1.5000 range.
The British economy was especially hard hit during the fall months thanks to the UK’s strong reliance on banking and other financial services. Citing data from the British Consular Office, Charmaine Buskas, senior economic strategist at TD Securities in Toronto says, “10.7 percent of UK gross domestic product (GDP) comes from financial services. It accounts for one in 30 jobs. They had the same troubles as everyone else, but amplified and magnified.” Like the U.S., the UK also suffered a crash in its over-leveraged housing market at the same time the global financial crisis began to hit.
“The UK is suffering more than some because of its financial and housing sector exposure,” says Stephen Webster, chief European economist at 4CAST Inc. GDP freefall Webster says the UK’s economic situation is “dire in every sense.” “Economically, the UK officially slipped into recession as of the fourth quarter 2008,” he says. “Credit conditions remain tight and confidence weak.” Ruth Stroppiana, chief interna-tional economist at Moody’s Economy.com adds: “The ongoing lending logjam and the associated adverse impact on the availability of credit to households and [corporations] will take a heavy toll on the economy. Real GDP is expected to sink by almost 4 percent from peak to trough, almost double the 2-percent contraction of the early 1990s, but less than the nearly 6-percent fall in the early 1980s following the ‘winter of discontent.’
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