report on uk and gbp

7/28/2019 Report on UK and GBP

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UNITED KINGDOM

AND

GREAT BRITAIN POUND

Prepared By: Waris Hussain

Prepared For: ISMAR Financials


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Index

BRIEF SUMMARY OF REPORT page 3

INTRODUNTION TO UNITED KINGDOM PAGE 4

FACTS AND FIGURE OF THE COUNTRY PAGE 5

ECONOMY OF THE UNITED KINGDOM PAGE 6

Past Events that affected the economy page 10

EXPERTS OPINION AND FUTURE OUTLOOK OF UK page 11

INTRODUNTION TO UK currency gbp page 12

MAJOR FACTORS THAT AFFECT THE GBP VALUE page 13

THE GBP MARKET AND CURRENCY MOVEMENT page 15

Future outlook of GBP Page 16


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BRIEF SUMMARY OF UK ECONOMY AND GBP

United Kingdom is located in Europe, its capital is London and it is the worlds largest financialhub. UK has 4 countries in it England, Scotland, Ireland and Wales. Official language of UK isEnglish and it follows a constitutional monarch system. Its currency is Pound Sterling. UK is aservice base economy and also it was the first industrialize nation and remain a industrializenation till 19th century.

Area of UK is 243,789 square kilometers and its population is around 63 million. Current UK economy can be seen in chart below.

INDICATORSCURRENT PERIOD LAST PERIOD HIGHEST LOWEST

GDP (%) 0.9 -0.4 5.3 (1973) -2.50 (1958)Inflation (%) 2.7 2.7 8.5 (1991) 0.5 (2000)Interest Rate (%) 0.5 0.5 17 (1979) 0.5 (2009)Unemployment (%) 7.8 7.8 12 (1984) 3.4 (1973)Trade Balance -3466 GBP m -3644 GBP m 2946 (1981) -6067 (2005)Balance of Payment -12834 GBP m -20767 GBP m 2752 (1981) -20767 (2012)Industrial Prod. (%) -2.4 -3 22.60 (1973) -11.90 (1980)Foreign reserves 103971 USD m 104210 USD m 104210 (2012) 35190 (2000)Govt. Budget (%) -7.8 -10.2 3.6 (2000) -11.5 (2009)Business confidence 4.2 1.1 25.8 (2010) -45.3 (2009)

Events that affect the economy of UK badly were 1919 Depression, Great Depression of 1930,1973 Recession, Early 1980s Recession, Early 1990s Recession, 2008 Recession, and Early2010 Recession.

UK currency is Pound sterling and its symbol is . In FOREX market it is denoted by GBP andits subunit is penny.

UK is ranked 5 in the top traded currency and it covers 12.9% market. Five factors that tend to affect UK currency most include monetary policy, price inflation,

confidence and sentiment, economic growth (GDP) and the balance of payments. Current GBP/USD rate is 1.6125 and it is in bullish trend from past 7 months. Last 52 week low

that can be seen was 1.5236 and last 52 week high was 1.6379. The average movement ofGBP/USD market is approximately 150 pips.

The 5 main economic events that move GBP/USD are FOMC Rate decision, BOE ratedecision, US Unemployment news, BOE meetings, GDP.
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INTRODUCTION TO UNITED KINGDOM

Brief Introduction

United Kingdom (UK) is an independent state located in Europe which came into being on 1 stJan 1801. United Kingdom basically includes four countries: England

Scotland

Wales

Northern Ireland

United Kingdom Government follows a constitutional monarchy system mixed with parliamentarysystem. Capital of UK is London. It is a developed country and it is the world sixth largesteconomy. UK economy is basically a service based economy and it has a literacy rate of around

99%. Also, it was the first industrialized country and worlds renowned power of 19th and 20thcentury. The UK is still referred to as a great powerand retains considerable economic, cultural,military, scientific and political influence internationally and It is also a recognized nuclearweapons state and its military expenditure ranks fourth in the world.

United Kingdom is a permanent member of:

UNITED NATION SECURITY COUNCIL, EUROPEAN UNION, Common wealth of Nations NATO Organization for Economic Co-operation and Development (OECD) World Trade organization

History of United Kingdom

As per the Act of Union 1707, two countries England and Scotland were united and have given aname of Great Britain. But in 1801 Great Britain and Kingdom of Ireland united under the Act ofUnion 1800 and has been given a name of United Kingdom. Thats why UK originally came intobeing in 1801. Although UK is sovereign and independent country but England, Ireland, Walesand Scotland are countries with in the country and have their own developed self-government.

This is the result of several centuries of historic events including the invasions of ruling Normansin Ireland, the Irish Rebellion of 1641, and War of American Independence. The union eliminatedthe separate Parliaments of Great Britain and Ireland creating an integrated Parliament of theUnited Kingdom. Ireland sent roughly 100 MPs to the House of Commons and 28 peers to theHouse of Lords.

During the 19th and early 20th century, the rise of Irish Nationalism emerged particularly in theCatholic population. Movement for the cancellation of the Act of Union is known as Home Ruleand many campaigns have failed including the one in 1912 that passed the House of Commons
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but was voted out in the House of Lords. In 1916, an one-sidedly declared Irish Republic wasannounced in Dublin and resulted to the Anglo-Irish War that lasts until 1921. The Anglo-IrishTreaty of 1921 formed the Irish Free State and left the British Commonwealth withoutconstitutional ties with UK and 6 northern Irish counties remained part of the United Kingdom.The Royal and Parliamentary Titles Act 1927 renamed the United Kingdom of Great Britain and

Ireland to United Kingdom of Great Britain and Northern Ireland.

FACTS AND FIGURE OF THE UNITED KINGDOM

Basic Facts

Geography and Population

The total area of the United Kingdom is approximately 243,789 square kilometers and thepopulation of United Kingdom is about 63 million. As of 1993 10% of the UK was forested, 46%used for pastures and 25% used for agriculture. Population wise it is the third largest in theEuropean Union and the 22nd-largest in the world.

Name Area (sq. km) Population (approx) (m)

England 130395 53 (84%)Scotland 78772 5 (8.5%)

Wales 20779 3 (5%)Northern Ireland 13843 2 (3%)

Origin Europe

Capital LondonOfficial Language English

Government

Monarch

Prime Minister

Queen Elizabeth

David Cameroon

Currency Pound Sterling (GBP)

Major languages: English, Welsh, Irish Gaelic, Scottish Gaelic.

Natural Resources: coal, petroleum, natural gas, tin, limestone, ir

ore, salt, clay, chalk, gypsum, lead, silica, ara

landDefense system and military It is a recognized nuclear weapons state and

military expenditure ranks fourth in the world.
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Between 2001 and 2011 the population increased by an average annual rate of approximately0.7% as compares to 0.3% per year in the period 1991 to 2001.The 2011 census also confirmedthat the proportion of the population aged 65 and over has more than trebled (from 5 to 16%).England's population in 2011 was found to be 53 million; it is one of the most densely populatedcountries in the world. In percentage terms England has had the fastest growing population of

any country of the UK in the period from 2001 to 2011, with an increase of 7.9%.

ECONOMY OF UNITED KINGDOM

Current situation

As per the measure of nominal GDP UK economy is 6

th

largest economy in the world and thirdlargest in the Europe. The British economy consist of 4 major economy England, Scotland,Wales and Northern Ireland. UK was the first the country who has given the concept ofIndustrialize development by industrializing themselves. UK plays a major role in the area offinancial industry in the world, thats why UK is also known as knowledge or service basedeconomy. London is the world largest financial centre and plays an important role in the countryeconomy. In terms of Foreign Direct Investment UK is ranked 3 rd. The currency of the UK is thepound sterling, which is also the world's third-largest reserve currency after the U.S. dollarandthe euro.

Its GDP as per 2011 data is $2.480 trillion. UK GDP growth was 0.9% in 3rd quarter of 2012. Itsinflation rate is 2.7% and unemployment rate is 7.8%. Its trade deficit is of $5.6 billion. Its majorexport is to Germany 11.6%, US 10.6%, Netherlands 8.4%, France 7.8%, Ireland 6.4%, Belgium5.7%.UK budget deficit is $25.4 billion.UK has a foreign reserves of about $104.8 billion. UKexternal debt is about $2115.21billion.

Main sectors of UK economy is Agriculture, hunting, fishing and forestry sector Construction sector Production industries (electricity, gas , mining etc) Service industry (creative, hotel, financial, tourism and education services etc)
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The service sector is the dominant sector of the UK economy, and contributes around 73% ofGDP. London is one of the world's largest financial centre and Edinburgh is also one of thelargest financial centre in Europe. Tourism is very important to the British economy and isranked as the sixth major tourist destination in the world. The automotive industry is a significantpart of the UK manufacturing sector and employs over 800,000 people, with a turnover of some

52 billion, generating 26.6 billion of exports. Agriculture is intensive, highly mechanized, andefficient by European standards, producing about 60% of food needs. Construction Industry isthe fastest growing sector of the economy after the 2010 Recession.

Major economic indicators and their past trend

Economic Indicator Current statisticsGDP (%) 0.9% (3rd quarter of 2012)Interest Rate 0.5%

Unemployment Rate 7.8%CPI 2.7%(124.4 index)PPI -0.3%Balance of trade (total)GoodsServices

$(5.6) billion$(14.83) billion$9.19 billion

Budget deficit $189.4 billionRetail sales 0.9%Industrial production (2.4) %Debt $2115.21billion.Foreign exchange reserves $104.8 billion

1. GDP Growth Rate

The GDP of United Kingdom increased to 0.9% in 3rd quarter of 2012. The average GDP ofUK from 1955 to 2012 is 0.62% and highest GDP recorded was 5.30% in 1973 and a lowestGDP recorded was -2.5% in 1958. Service sector account for 75% of GDP, industrial sectoraccounts for 21.5% of GDP.
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2. Interest Rate

The interest rate prevailing in the United Kingdom is 0.5% and it is the responsibility of Bank ofEngland to set the interest rate of UK. The prevailing interest rate is consistent from March 2009.

From 1971 till now interest rate averages 8.25%, all time high interest rate was 17% in 1979 and

current interest rate is the lowest.

3. Unemployment Rate

Current unemployment rate in UK is 7.80%. UK all time (1971-2012) average unemployment rate is

7.3%, whereas highest and lowest Unemployment rate are 12.0% (1984) and 3.4% (1973)respectively.

4. Inflation Rate


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Consumer price index Inflation rate as per November 2012 data is 2.70%. The Retail PricesIndex annual inflation stands at 3.0% in November 2012, down from 3.2% in October.Historically, from 1989 until 2012, the United Kingdom Inflation Rate averaged 2.8%reaching an all time high of 8.5% in April 1991 and a record low of 0.5% in May 2000.

5. Trade Balance

The trade deficit of UK is about $5.6 billion; the split off of this data is that UK has a tradesurplus of $9.19 billion in service sector where as trade deficit of $14.83 billion in industrialproduction sector. Historically, from 1955 until 2012, the United Kingdom Balance of Tradeaveraged -1195.09 GBP Million reaching an all time high of 2946 GBP Million in March of1981 and a record low of -6067 GBP Million in August of 2005. Since 1998, U.K. runs

consistent trade deficit mainly due to increase in demand of consumer goods, decline inmanufacturing and deterioration in oil and gas production. Major export partners of UK areGermany 11.6%, US 10.6%, Netherlands 8.4%, France 7.8%, Ireland 6.4%, Belgium 5.7%and major import partners are Germany 13.2%, China 8.7%, Netherlands 7.5%, US 6.1%,France 6%, Norway 5%, Belgium 5%.

6. Industrial Production
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Industrial Production in the United Kingdom decreased 2.40 percent in November of 2012over the same month in the previous year. In the United Kingdom, industrial productionmeasures the output of businesses integrated in industrial sector of the economy such asmanufacturing, mining and utilities. All time high increase in industrial production is of22.60% in 1973 and a record decrease in industrial production is -11.90% in 1980.

PAST EVENTS THAT AFFECTED THE ECONOMY

EVENT ANDYEAR

DURATION CAUSES AFFECTS

Post-Napoleonicdepression

(1812)9 years

The post-Napoleonic depressionrefers to a post-war economic

depression experienced by Europeancountries following the end of the

Napoleonic wars. Its a post war re-adjustment.

Panic of 1857 1 year

The Panic of 1857 was a financialpanic in the United States caused bythe declining international economyand over-expansion of the domesticeconomy. In fact it was first global

economic crisis.

Brief contraction of economyof approximately 3.5%.

1867-9 recession 2 yearsImpact on exports resulting from

American recession post-civil war.1.9% fall in GDP

Long Depression1873

20 years

The Panic of 1873 has beendescribed as "the first truly

international crisis". Whole world washit but UK was worst hit.

Agricultural deflation hitfarmers and their workers,although industrial output

continued to grow.

1919 Depression 3 years End of World War 1

GDP reduced by 11% in1919, 6% in 1920 and 8.1%in 1921. Deflation -10% in1921 and -14% in 1922.

GreatDepression 1930

2 yearsThe Great Depression was a severe

worldwide economic depression inthe decade preceding World War II.

Reducing demand for UKexports, also high interest

rate defending the goldstandard. 3-5% deflation paUK much less affected than

US. Took 16 quarters forGDP to recover to that at

start of recession.

1973 Recession 2 years 1973 oil crisis.

Took 14 quarters for GDP torecover to that at start of

recession. GDP reduced by3.9% and 3.4%.

Early 1980sRecession

2 yearsCause possibly because of

monetarist government policies toreduce inflation

GDP Reduced by 5.9% and5.8%. Company earnings

decline 35%. Unemploymenrises to high extent.
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Early 1990sRecession

2 years US savings and loan crisis.

GDP reduce by2.5%.Company earnings

decline 25%. Peak budgetdeficit -8% of GDP.

Unemployment rises 55%from 6.9% of the working

population in 1990 to 10.7%in 1993.

2008 Recession 1.5 years World financial crisis

Manufacturing output down7% by end 2008. It was thedeepest recession since the

war. It has affected manysectors including banks andinvestment firms, and seen

many well known andestablished businesses foldThe unemployment rate rose

to 8.1%.Early 2010Recession

1 yearFiscal retrenchment, European

sovereign debt crisis. Double-dip Recession.

EXPERTS OPINION AND FUTURE OUTLOOK

As per the Price-water house Coopers (pwc) report:

The outlook for growth and employment is gradually improving across the UK as a whole. The

Euro zone outlook remains much stormier, which creates downside risks around growth whichbusinesses should make contingency plans for.

The UK economy has been on a bit of a roller coaster ride over the last few years, but themessage from our latest Economic Outlook report is that the latest dip seems to be bottomingout. We are now more optimistic that we will get some growth next year, perhaps just under 2%compared to about zero this year. And that is because GDP growth picked up in the thirdquarter, retail sales are up, employment is up, and unemployment is down. So there has beensome better news in recent weeks and months that give us a bit more cautious optimism aboutthe future. At the same time, there are plenty of risks out there the euro zone crisis continuesand businesses would be prudent to make contingency plans for less favorable outcomes in the

euro zone.

The UK economy has been on a bit of a roller coaster ride over the last few years, but themessage from our latest Economic Outlook report is that the latest dip seems to be bottomingout. We are now more optimistic that we will get some growth next year, perhaps just under 2%compared to about zero this year. And that is because GDP growth picked up in the thirdquarter, retail sales are up, employment is up, and unemployment is down. So there has beensome better news in recent weeks and months that give us a bit more cautious optimism aboutthe future. At the same time, there are plenty of risks out there the euro zone crisis continues
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and businesses would be prudent to make contingency plans for less favorable outcomes in theeuro zone. For the Bank of England, the message is that as the economy recovers they need tosignal a clear strategy on interest rates so businesses can plan accordingly.

Key projection for UK economy is that its Real GDP growth will be 1.8% for 2013, Inflation will be2.3% in 2013 which wash 2.7% in 2012 and consumer spending growth will increase by 1.3%.

INTRODUCTION TO THE UK CURRENCY GBP

The pound sterling (GBP) is the official currency of the United Kingdom and London is the worlcapital for foreign exchange trading. Volume traded in London foreign exchange is in trillions. ThBank of England is the central bank which is responsible for issuing pound sterling and takindecisions regarding the currency. Sterling is also the third most held reserve currency in globareserves. GBP is the fourth most traded currency in market.

BASIC INFORMATION OF UK CURRENCYCurrency Name Pound SterlingCurrency Symbol Subunit PennyDenominations Coins 1p, 2p,5p, 10p, 20p, 50p, 1 and 2 pound

Banknotes 5,10,20 and 50 poundsOfficial users 9 British Territories

5 MOST TRADED CURRENCY

United States USD ($) 84.9%

European Union EUR () 39.1%

Japan JPY () 19.0%

United Kingdom GBP () 12.9%

Australia AUD ($) 7.6%

There are about 9 British territories that are official user of GBP named British AntarcticTerritory , Falkland Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Saint Helena, Ascensionand Tristan da Cunha, South Georgia and the South Sandwich Islands, British Indian OceanTerritory.

British pound is one of the most important currencies in the world. The facts that it is the oldestcurrency currently being used and also a highly valued currency among the major currencies ofthe world help it earn a fourth place in the list of most traded currency. One of the reasons forthe heavy trade in the currency is the location of the largest foreign exchange trading hub i.e.London in the area where pound sterling is used as a currency. The currency uses a floatingrate regime and can be easily traded in the foreign exchange markets. The contraction of theBritish economy has led to a highly volatile monetary system and that is why the value of thecurrency fluctuates frequently in comparison with the United States dollar and Deutsche Mark.This attracts the attention of the investors resulting in more of investment and more of hedgingin the currency.
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History

The pound sterling of the United Kingdom was originally the value of one Troy pound of sterlingsilver, hence the name: Pound Sterling. The Pound Sterling was adopted as the RoyalChartered Bank of England's currency in 1694. England's national debt increased exponentially,

from 1700 to the mid 1790's, thus making it extremely difficult to exchange banknotes for gold.The subsequent strain on the nation's financial system led to what was known as theRestriction Period when in order for the bank to play catch up with its' finances, it issuedbanknotes of one and two pounds in place of the actual coinage.

In further efforts to increase the stability of the pound, the Bank Charter Act of 1844 introducedthe Bank of England as the only bank in the United Kingdom allowed issuing banknotes as alegal currency. This meant that all other banks in England and Wales were legally obliged toobtain their banknotes from the Bank of England. In Scotland, however, The Banknote(Scotland) Act of 1845 allowed Scottish banks to continue to issue their own Pound Sterlingbanknotes.

Having learned from the effects that inflation had on the financial market from the RestrictionPeriod the Bank of England began to control the production of banknotes. This ensured thatbanknotes were only produced when there were gold reserves to back them. The Bank ofEngland became a major lender to other commercial banks. As it was difficult to keep backingbanknotes with gold standard while still lending to other banks the Bank of England had to setinterest rates high to maintain the gold standard supply.

Shortly before the First World War, the treasury issued the small and simple cipherwatermarked stamp paper 10/- and 1 banknotes. The Bank of England tried to return to goldstandard after the war, but gold standard could no longer continue to work in the growingfinancial market. From 1932 to the present day, the only limitation on issuing bank notes is that

of the UK Parliament's approval.

MAJOR FACTORS THAT AFFECT THE GBP VALUE

Due to Pound Sterling popularity and familiarity among traders, many people that begin totrade forex often choose the GBP as one of the currencies they trade. For traders that trade onfundamentals, knowing which reports to follow that affect the GBP is very important.Specifically, five factors that tend to affect all currencies the greatest include monetary policy,price inflation, confidence and sentiment, economic growth (GDP) and the balance of

payments. Using these five general factors as a template, you can then determine whichreports are most important to form a comprehensive view of the direction of a currency.

1. Prices and InflationThe first important factor, price and inflation, plays a crucial role in the value of the GBP. Ingeneral, countries with high levels of inflation relative to other countries see their currencyvalue depreciate more compared to those other currencies. In addition, inflation also usuallycauses the central bank to take action, such as adjusting interest rates to control theseunwanted effects.
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To gauge levels of inflation in the U.K., traders will typically follow the Consumer Price Index(CPI), compiled and released by the Office for National Statistics. The CPI calculates thechange in prices of goods and services purchased by consumers in a given period. This reportis important because it is the measure that the Bank of England (BOE) uses for its inflationtarget. Any changes in the CPI that deviate from the BOE's inflation target could imply future

monetary policy action that could significantly affect the GBP. In addition, although consumerprices tend to affect the majority of changes in the level of inflation, other measures such asthe Producer's Price Index (PPI) are also useful. The PPI report is also released earlier thanthe CPI, so both should be viewed together for a more complete picture.

2. Monetary Policy

The report that mostly trader follow are interest rate report and Bank of England inflationreport. Whenever the BOE feels that inflation is getting to a level that threatens the stability ofthe pound, the bank will use monetary policy tools at its disposable to control inflation. It is thetiming of these monetary policies, such as interest rates changes that traders want to predict.

To keep track of monetary policy, traders will follow the changes in the bank rate, which is theinterest rate banks charge other banks on balances held at the BOE.

3. Confidence and Sentiment

Surveys that gauge market sentiment are another important tool for fundamental traders.Confidence and Sentiment reports for the U.K. are important because traders want to knowwhether the majority of people are optimistic about the economy or pessimistic. The changesand the size of the change can be keys to detecting shifting trends in the underlying economy,and consequently changes in the GBP.

To track sentiment in the U.K., many traders will follow the Gfk Consumer Confidence and theNationwide Consumer Confidence Index (NCCI) reports. Both reports are surveys based onfive questions that relate to the general economic environment, employment and expectationsfor the future.

4. GDP/Economic Growth

Reports that mostly trader focus on are Manufacturing PMI, Services PMI, Retail Sales, GDP.The primary measure of economic activity in the U.K., as in many other countries, is the grossdomestic product (GDP). In addition, because the GDP is a quarterly report, many traders willsupplement that report with more frequent indicators of economic activity such as retail sales,

manufacturing PMI and services PMI. As consumers are generally considered by many as thedrivers of economic activity, retail sales are usually given a larger weighting of importance.

5. Balance of Payments

Lastly, the balance of payments for a country is an accounting record of its interaction with therest of the world. The Balance of payment is made up of three accounts, but generally only thecurrent account is of interest to forex traders. The current account shows how much a countryis exporting and importing, and the flow of income payments and transfer payments. In
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general, a current account surplus is positive for the currency as it shows more capital isflowing into the currency than leaving, and a deficit is negative for the opposite reasons.

Also, it should be noted that the trade balance report is released monthly, while the currentaccount is released quarterly. For import export data only the trade balance report should be

use.

THE GBP MARKET AND CURRENCY MOVEMENT

Mostly Pound sterling is traded against US dollars. The most recent Bank for Internationa

Settlements (BIS) survey shows that the GBP/USD with 14% of total daily volume is the third mostraded major currency pair. The GBP/USD is one of the most volatile currency pairs.

Trading the GBP/USD currency pair is also known as trading the "Cable". THE GBP/USD rateis composed of the British Pound "base currency" and the US Dollar "quote currency". Thevalue of the GBP/USD pair is quoted as 1 British pound per X U.S. dollars. The GBP/USDtends to have a negative correlation with the USD/CHF and a positive correlation to theEURO/USD currency pairs. This is due to the positive correlation of the euro, Swiss franc andthe British pound.

The current rate, as on 13th Jan 2012, of GBP/USD is 1.6125. From June 2012 GBP/USD

market is moving in bullish trend. As per 2011 to 2012 data the highest high it has made was1.6745 in April 2011 and the lowest low it has made was 1.5233 on January 2012. Last 52week low that can be seen was 1.5236 and last 52 week high was 1.6379.

Average broker spread in GBP/USD is 4 to 5 pips. The average daily movement of USD/GBPis around 150 pips. GBP/USD most active trading session are London and New York session.The 5 main economic events that moves GBP/USD are

FOMC Rate Decision + Press Conference

BOE Rate Decision + Press Conference

US Employment (Non Farm Payrolls) Bank of England Meeting Minutes

Gross Domestic Product (GDP)


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The GBP/USD movement of year 2012 can be seen in graph.

Future outlook of GBP

The third-quarter growth surprise has given the pound a firm platform going to the year end.While there is the threat of more QE, this is usually only a short-term driver for sterling and themonetary loosening signals from the U.S. Fed and the ECB are more emphatic than those fromthe BoE.

David Tinsley at BNP Paribas says a cloud of uncertainty currently hangs over asset andcurrency markets in the run-up to Christmas, which is favoring the dollar.

As various euro zone and U.S. uncertainties are ironed out, this should favor sterling. 'We alsoexpect UK growth news to be better than the euro zones and on a par with the U.S.,' added Mr.Tinsley.

Philip Shaw at Investec emphasized that sterling's exchange rates are a bit part in the euro-dollarstory. With a pessimistic outlook on the euro zone, he expects sterling to make gains against theeuro in the coming months to about 1.30 but to fall against a strong dollar to about $1.53.

'An end to uncertainty on how the U.S. is going to address the fiscal cliff will favor the dollar,particularly in the case of a Republican victory,' he said, 'Meanwhile, euro zone pressure pointswill flare up again in the New Year.'

In the long-term, many economists believe the days of 1.50 to the pound are gone and thateven 1.40 is unrealistic.


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They argue that the economic fundamentals have changed so that 'fair value' between the euroand pound is somewhere around 1.30 and $1.60 - maybe slightly higher in each case.

If the pound appreciates significantly above these rates, it will harm the UK economy and beunsustainable in the long and even medium term.

The euro zone crisis, however, is making it increasingly difficult to estimate what fair value isbetween the euro and other currencies, and has a distorting effect on the pound-dollar rates also.

report on uk and gbp

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