UK Pound Sterling Set To Slump With Premature Fiscal Tightening

24
Feb

UK Pound Sterling Set To Slump With Premature Fiscal Tightening

By Janet Leicester

The UK pound sterling may fall below parity with the euro and drop to $1.05, the lowest level against the dollar since the mid-1980s, if the government tackles the country’s debt burden too early, UBS AG said.

“If the next government was to prematurely curb the fiscal deficit after the elections, without the economy reaching a surer footing, the consequences for sterling, financial markets and public confidence would be grave,” Mansoor Mohi-Uddin, chief currency strategist at UBS in Singapore, said today in a research note.

“It would not be hard to envisage a scenario of the pound falling quickly back to its mid-1980s low of $1.05 and below,” he said. “Similarly, the euro could easily overshoot parity against sterling if premature fiscal tightening drove the U.K. economy back into recession.”

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