Soros: Pound Devaluation Option for Next U.K. Govt

Monday, 12 Apr 2010 12:45 PM

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Billionaire investor George Soros says devaluing the pound sterling is an option for rebalancing Britain’s economy and boosting its economic recovery.

“It’s a question for the next government to decide,” Soros says.

“Britain, by having kept out of the euro, has that option of allowing the exchange rate to adjust,” he told Business Week.

The pound has dropped about 25 percent on a trade-weighted basis since 2007.

At about 12 percent of gross domestic product, the U.K. deficit rivals that of Greece. Net debt climbed to 60.3 percent of GDP in February.

“It’s a question now of, if you now cut the budget deficit and borrow less, you could probably keep the currency, raise the interest rate, you could keep the currency from going down,” Soros notes.

Soros says that Britain is probably not at the limit of its borrowing capacity but is in “a very difficult situation” nonetheless because the country “has had a really serious jump in its indebtedness” due to the government having had to take over the debt of troubled banks.

Analysts at RBS bank say foreign exchange rate markets will prove fickle for the British pound in the coming months.

"Uncertainty surrounding the general election could lead to volatility over the next month or two, especially if no party wins an overall majority,” the bank said in a media note.

“Nevertheless, over the medium term we expect sterling to strengthen modestly against the euro and gravitate towards 1.60 against the dollar."

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