Sunday 16 December 2018

Chancellor Philip Hammond says pound is in a ‘sweet spot’

The pound hit a fresh post-Brexit vote high of 1.432 versus the US dollar on Thursday.

Chancellor of the Exchequer Philip Hammond has been talking about the state of the pound (Stefan Rousseau/PA)
Chancellor of the Exchequer Philip Hammond has been talking about the state of the pound (Stefan Rousseau/PA)

By Ben Woods, Press Association Chief City Correspondent

Chancellor Philip Hammond said sterling’s resurgence has put the UK currency in a “sweet spot”, helping to alleviate the pain of Britain’s soaring inflation and paltry wage growth.

He said the Government was “very happy” with the pound’s position following its latest winning streak, with sterling clocking further gains on Thursday to hit a fresh post-Brexit vote high of 1.432 versus the US dollar.

While largely boosted by the US dollar’s weakness, the resilience of the UK economy and record employment data has handed extra support to the pound.

Speaking to Bloomberg Television, Mr Hammond said: “The UK is a very open economy and a weaker pound has two effects: it helps our exports, but it raises the cost of our imports.

“And one of the challenges we’ve had over the last year or so has been that a weaker pound has led to higher inflation and stagnant real wages.

“And that’s driving some of the challenges that we face at home.

“So, getting that inflation rate down and a rising pound will help to do that, helps to drive increases in real wages. And that’s good for our economy and good for our society.

“Yes, there’s a sweet spot. Actually, over the last few days, we have seen the pound appreciate against the dollar quite rapidly, but it’s pretty stable against the euro.

“So, we are very happy with where the currency is at the moment.”

Sterling has recorded falls of 20% versus the US dollar since Britain voted to leave European Union on June 23, 2016, while falling around 18% against the euro.

However, the pound has enjoyed a much brighter performance compared to both currencies in recent months, with sterling now around 5% and 12% lower against the US dollar and euro respectively since the Brexit vote.

The pound was around 0.2% higher against the euro at 1.149 on Thursday.

The renewed strength of the UK currency will bring some comfort to British households, who have seen inflation rise at a significant clip following sterling’s slump.

The latest data from the Office for National Statistics showed inflation had eased to 3% in December, down from 3.1% in November when it reached its highest level since March 2012.

However, it is still significantly higher than the 0.3% recorded in the month prior to the EU referendum result.

Turning his attention to cryptocurrencies, the Chancellor said any regulation of Bitcoin should not impinge the blockchain technology that underpins it.

He said: “I am interested in Bitcoin. The Bank of England, as you know, among the central banks, has been leading on looking at Bitcoin.

“Look, it is a very interesting, new development. I am – I think we should be cautious about Bitcoin.

“And possibly, we do need to look at the way we regulate this environment before the amount of outstanding Bitcoin becomes large enough to be systemically important in the global economy. It’s not there yet, but it could get there soon.

“What is really important is that in regulating cryptocurrencies, we don’t inadvertently constrain the potential of the technology that underlies it, the blockchain technology, which has a wider and more important application.”

Bitcoin has endured a choppy ride since the end of 2017. It has fallen from December highs of nearly 20,000 US dollars (£14,465) to 11,129 US dollars (£7,806) on January 25, according to Coindesk data.

Adding to the chorus of voices on Bitcoin, Prime Minister Theresa May said: “I think in areas like cryptocurrencies like Bitcoin we should be looking at these very seriously precisely because of the way they can be used, particularly by criminals.

“It is something that has been developing. I think it is something that we do need to look at.”

Press Association

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