Pound Falls to Record Low Against Euro

The pound dropped to 74.30 pence against the Euro last week, the lowest level since the introduction of the single European currency in 1999.

The pound fell to a record low against the euro following the Bank of England prompting lenders to reduce the flow of credit available to consumers and businesses, in the first quarter of 2008.

However, the trend has lead many financial experts to believe the slow down is a result of consumers reduced demand for loans and mortgages, as UK banks report a fall in mortgage requests during November 2007. The low pound was also compounded by a fall in the purchasing managers’ index (PMI) by 1.4 points.

Neil Jones, Head of European Hedge-fund Sales at Mizuho Capital Markets comments, “The pound is suffering on expectations of both lower credit supply and demand, a reduction in credit should cause lower interest rates.''

However, James Gonzalez, Market Analyst at Obelisk reports that the benefits of a weakened pound and a cut in interest rates can have positive effects for many consumers in the UK. “The UK has seen astronomical interest rate rises over the last year, so any reduction should be warmly welcomed by homeowners.”

“The strength of the Euro is a clear indication of the Eurozone’s healthy economy and in fact remained unscathed by the recent financial turmoil. The cost of borrowing in terms of equity release in the UK will consequently be lower if the Bank of England reacts to calls for a further cut in interest rates. For existing homeowners, rates cut will indeed make overseas property investment even more desirable.”

He continued to say, “Overseas property investors who entered the ‘New Europe’ markets early, will also find that the strength of the Euro will have a good impact on any overall profits. Choosing to enter a resale market or renting their property when a local currency is buoyant against their home currency further increases the net worth of repatriated funds.”

Early forecasts indicate that the pound is likely to remain deflated until a renewed confidence in the financial stability of the UK market.

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