Sterling reaches 26 year high against the dollar but British business is suffering

31 October 2007
The pound reached a 26-year high against the US dollar yesterday, hitting $2.0671 for the first time since 1981, with some economists predicting it could hit $2.10 in the coming weeks.

Although a strong pound should be good news, and it is, for UK holidaymakers taking trips to the US, British businesses are suffering the affects.

With the pound’s strength, exporters are finding their products are harder to sell, while hotels, shops and restaurants are feeling the pinch as the sterling thrives against the dollar and drives US tourists away.

Barry Naisbitt, Chief Economist at Abbey, says as with all rates, there are winners and losers.

“Exchange rates are volatile and notoriously difficult to predict, and it may be that the expectation of a further rate cut in the USA has played a role in lowering the dollar,” he said.

“Those who are planning to take winter breaks in the USA will be pleased to find that their pound will go further towards there Christmas shopping. As with many things in economics, however, there is a balance to be struck. UK exporters looking to sell goods in the US will find that the stronger value of sterling could reduce their sales growth."

The pound’s rise comes amid fears that the Bank of England will hold off a rate cut after Monetary Policy Committee member Kate Barker implied that it was unlikely.

In an interview, Ms Barker was quoted as saying that the question now for policymakers is whether economic conditions had actually changed that much, saying “we are asking ourselves if things are so different from August and do we actually have to cut rates?”.

Ms Barker’s comments come as more bad news for borrowers, who have struggled to cope with three rate rises since January.

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