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.