Tuesday, 9 February 2010

UK can print its own currency until the cows come home


Retail sales data in the UK for January was abysmal and there are more commentators drawing attention to the parallels between the plight of the UK’s public balance sheet and those of the PIIGS nations. The big difference of course is that the UK is able to continue printing more of its own currency, effectively until the cows come home.

While this may be able to alleviate the ultimate anxiety about a default by the UK government the fact that the UK will increasingly have to sell its gilts to foreigners will continue to pressure sterling.

As indicated on the chart the area above the current spot price as this is being written will present a significant hurdle, especially if the euro remains under pressure.

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