º£½ÇÊÓƵ

WHAT might this mean to your pockets?

Before I start, please don’t read what you think my politics are, you’ll be wrong. I focus on the values of fairness, kindness, fierce independence and honesty. If a government or financial institution is on the wrong side of that, I exercise my total Independence to comment and guide, as I’m sure you have seen.

I’m sure everyone will have seen how Liz Truss has hopped between different extreme stances (Remain, Brexit, left, centrist and right). This is important, as overseas markets study her movements. As the º£½ÇÊÓƵ has a significant current account deficit in that it imports more than it exports, so international investors are essential to keep the books balanced.

Any plans will be scrutinised and, with a weakened currency, inflation comes further under pressure. The day after the º£½ÇÊÓƵ election in 2019, £100 would buy over €120. In all but one day over the last two and a half years, sterling has remained below that, and today, that will buy just £115.

That is significant as the EU has been one of the biggest importers into the º£½ÇÊÓƵ and every drop in the currency is directly reflected in the cost of goods (inflation). The more sterling comes under pressure, the greater the pressure on rates to rise, driving up the cost of government debt, causing increases in our borrowing costs, as well as increased holiday costs through a weak currency.

The º£½ÇÊÓƵ government borrowing more money isn’t being supported by markets as seen by sterling and bond market responses, particularly as the office for budget responsibility has stated the country can’t really afford extra spending.

Of most significance here is the relationship between the º£½ÇÊÓƵ and its key trading partners, but Liz Truss’s foreign policy comments seem aligned to a peculiar strategy. Given everything I’ve said so far, she has stated she will take a hard line on all foreign powers from Beijing to the EU, potentially pushing a trade war from potentially one of the weakest economic positions the º£½ÇÊÓƵ has ever been. Its economics are pretty dire. She is a supporter of rewriting the Northern Ireland protocol which, as well as rubbing up the EU, will not go down well in the USA. These are the three key trading partners. Her focus should be about building relationships with the international investors.

Let’s not forget that most of the larger firms in London derive their income from abroad. Why is that important? Simply because a weakened sterling supports their profits as they repatriate their earnings back into the º£½ÇÊÓƵ with a bonus, so every one per cent fall in the currency is a one per cent increase in their turnover. Many of these are energy companies who really need extra profits of course!