Britain’s economy continues to decline as the global economic downturn continues to intensify. As the weeks pass by, additional negative economic data is published from the British economy. This contrasts to recent years, when Britain was known for her strong service sector economy. The British currency was also thought to have been a safe-haven up until a few months ago. However, in the past 6 months the Pound Sterling has slipped against the European Single Currency. In addition, the weakness of the British economy has deterred people from investing in the British economy and the Pound as attractive investments.
The current financial crisis has ignited debate over whether Britain should join the EUR. Just over a year ago, the EUR/GBP rate was as low as 0.7500. However, it now stands at 0.9051. Government and opposition Conservative Party politicians in Britain fear that the Cable will continue to drop against the EUR. Analysts expect this to be likely, as Britain has been affected worse by the global recession than her European neighbors, such as Germany, France and Italy.
The British government and the Bank of England (BoE) are running out of ideas that may rescue the economy. For example, the BoE cut Interest Rates by a massive 100 basis points from 3% to 2% back in December. The Governor of the Bank of England Mervyn King is expected to slash Interest Rates further today, as the British economy is expected to continue sliding.
British and European analysts expect the current economic crisis in Britain to deepen. This is backed up by data which shows that Britain’s GDP recently slid behind that of France and Italy for the first time since 2006. Issues such as these have made the British Prime Minister Gordon Brown increasingly unpopular as he runs out of answers to rescue Britain from her financial woes.
Britain joining the EUR depends on two important issues. First, the British economy and the Pound Sterling need to slide further in the next year. It is important to note that many analysts and high-ranking British politicians do expect this to happen. Secondly, the reelection of Gordon Brown and his ruling Labour Party in the upcoming British election would dramatically increase the chances of Britain joining the European currency. Therefore, a decision on whether to abandon the Pound is likely to take place by the end of 2010.
