From The Hindu Archives, September 7, 1973 | Concern in U.K. over Weakening Sterling

From Batuk Gathani

LONDON, Sept. 6.

Although the British Prime Minister and the Chancellor of the Exchequer are showing no signs of anxiety about the latest downturn in sterling, informed sources here predict that the British currency could be in serious trouble before the year is out. The latest run on the pound has been sparked off by concern of overseas holders of sterling that next week’s figures will show a substantial worsening in Britain’s trade position. There are also fears that British trade unions will decide to resist the Government’s Phase 3 anti-inflationary programme.

British businessmen can expect a further rise in short-term lending rates. The Government has so far tried to “peg the pound” by attractive interest rates to overseas depositors,

There is very heavy selling of sterling on the London exchange market. There are also fears that if the pound continues to deteriorate it will have a depressive effect on the exchange rate of the dollar. Sterling’s effective devaluation since December 1971 against the world’s other leading currencies is now 18.84 per cent.

A great deal about the future of leading currencies seems to hinge on the outcome and agreements of the Group of Twenty deputies’ meeting on monetary reform in Paris this week. This is to be followed by the annual International Monetary Fund meeting at Nairobi at the end of this month. But the crux of the matter, so far as the waning future of sterling is concerned, lies in the state of the British economy and the Heath Government’s ability to bring down the rate of inflation. In the background of growing labour unrest, sagging trade figures and above all slowing down of the economy, it is difficult to envisage how the present Government can bring the rate of inflation down. The majority of commentators here are agreed that the overall payments deficit for 1973 will be at least £1,000 millions (Rs. 1,900 crores).

Mr. Heath’s criticism of the “prophets of doom” has found little sympathy here. The only factor which to-day “keeps the pound going” is the benefit of high London interest rates which remain above yields to be earned in other major financial centres. And this looks more like an artificial situation every day.