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No end to sterling woes 01.05.08
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THE WOES for
cross-border Inishowen workers being paid in
sterling are set to continue, according to leading
economist.
Malin-born Dr. Dan McLaughlin said the speed and
severity of sterling's fall against the euro had
been "surprising".
Cross border workers being paid sterling have
reported a 15% drop in their buying power in recent
months. It is a particularly stressful time for
workers paying mortgages in euro. A €500 to €600
monthly mortgage is now costing homeowners up to
€100 a month more than over a year ago. |
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"Sterling has had an
awful six months, falling substantially against most
of the
other major currencies, including the euro," said
Dr. McLaughlin, who is chief economist with Bank of
Ireland.
He said the euro broke above 71 pence in November
but had powered ahead since. It briefly paused
around 74 pence before establishing a new high of
just under 81 pence a week ago.
"The pace and severity of the move has been
surprising and begs and explanation. Six months ago
the consensus forecast for euro/sterling was 70
pence for mid-2008. |
One factor is the
differential in interest rates, which has swung
against sterling," he explained in his latest
economic bulletin.
And Dr. McLaughlin had some bad news for Inishowen
homeowners. He predicted that the European Central
Bank would not lower rates this year and that the
rate would remain at 4% for the rest of 2008. This
compares to the British bank rate of 5% although Dr.
McLaughlin predicted that the rate would drop
further to 4.5% in Britain.
Meanwhile, he believed sterling was "significantly
oversold and undervalued" but that the current
economic climate did not present a recipe for a
strong rally in the British currency.
"Consequently, we expect a partial reversal taking
it back to 75 pence against the euro in the coming
months, although it remains vulnerable to another
lurch downward in the credit cycle," he added. |
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