Sterling crisis fears spread

STERLING is teetering on the verge of collapse as Spain’s downgrade focuses the spotlight firmly on the UK’s public finances and the political uncertainty ahead of next week’s general election, a top French bank warned yesterday.

BNP Paribas’ senior currency strategist Ian Stannard said that the pound faced a no-win situation after the election regardless of the outcome and could slump to $1.47 in the event of a hung parliament.

Alan Clarke, UK economist at the French bank, said that a hung parliament will significantly increase the likelihood of a downgrade, which he estimated to be around 50 per cent, compared to a consensus view of 10 per cent.

But even if the Conservatives do scrape home with a working majority and they are able to get a package in place, he said that sterling will only see a short-term rebound.

BNP Paribas strategists are currently some of the most bearish analysts in the market on the pound and they forecast $1.31 by the end of the year for cable (sterling-US dollar).

And in spite of Europe’s severe sovereign debt troubles, Stannard thinks the euro could actually strengthen against the pound, hitting as high as £0.95 at some point later this year.