Value of the pound hits low

The pound has fallen to its lowest level against the euro since April, after a warning that UK debt may not be sustainable at current levels.

The Bank of England has cautioned that foreign investors may not be as willing to purchase UK assets, which will hurt the pound's long-term exchange rate.

The pound fell as low as 1.1016 euros, and fell to US$1.6134 against the dollar, which is its weakest in almost three weeks. But the sterling is still stronger than it was at the start of the year.

The fall in the value of the pound against the euro has sparked renewed talk of parity between the two currencies.

"We were here last October and we headed down to parity against the euro by Christmas. I think we are going the same way again," Mark O'Sullivan from Currencies Direct told the BBC.

The Bank of England's quarterly bulletin, the Bank of England noted that the UK had run current account deficits for more than a decade - sustainable as long as the deficit was offset by foreign investors' purchases of UK financial assets.

"But the financial crisis may have led overseas investors to reassess their willingness or ability to purchase sterling assets and thereby finance the UK trade deficit," the Bank of England said.

"As a result, the long-run sustainable real sterling exchange rate... may have fallen."

The Bank have said that while some factors behind the pound's fall might be temporary, others could be longer lasting.

On Friday, official figures showed the UK's public sector net borrowing totalled GBP£16.1 billion last month. which was the highest figure on record for August.

The government's overall debt now stands at GBP£804.8 billion, or 57.5 percent of GDP, an increase of GBP£172 billion in the past year.

The current levels of debt are, in part, thanks to the government bailing out troubled banks, plus its efforts to stimulate the economy during the recession.

As well as that, it has had to contend with severely reduced tax receipts from house sales and City bonuses.

Since September 2007, the pound has fallen almost 20 percent on a trade-weighted basis.

It also means millions of Britons face another hike in the cost of travel.

21/09/2009

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