The economic situation in the United Kingdom is being portrayed as being in a worse situation than it really is, according to Goldman Sachs, who say that they are accordingly bullish on the pound and on gilts.
According to Reuters, Thomas Stolpher, London-based economist for Goldman Sachs Group Inc, said in a report emailed today: “the likelihood of a near-term improvement in business activity suggests sterling could bounce back quite quickly. We therefore stick to our guns and remain long sterling.”
After hitting a 24-year low against the US dollar yesterday, the pound had recovered a little this morning to $1.3868, though short term volatility remains strong.
Goldman Sachs predict that the pound will move back to above US$1.60 and EU1.11 within three months.
Their view is echoed by several other media commentators including Anthony Hilton of London’s Evening Standard, who surmises that there was there was no fundamental reason for the 6-cent plunge on Tuesday and that the pound should be at $1.60 now on purchasing parity terms.
There has been much media coverage given over to pound doom-sayers including Crispin Odey - “the UK is bankrupt”, and colourful US commodity dealer Jim Rogers “sell all their currency (UK pound) fast”.
As Anthony Hilton says, the suggestion that the UK is bankrupt is simply absurd. Germany and many other Western countries have a higher level of debt as a proportion of GDP than does the United Kingdom. Germany and other large exporters, including Japan and China will likely suffer worse fallout than the UK as word trade continues to decline, a view shared by Lombard Street Research economists.
Further, the comments of Odey, Rogers et al must be taken in context of their involvement in the markets, and the likelihood of their holding extreme short positions on sterling. Jim Rogers was a former partner of George Soros when they together ‘broke’ the Bank of England in 1992, effectively costing the UK taxpayer more than US£1 billion.
