Euro reaches record high against pound amid UK fears

THE EURO rose to an all-time high against the pound, reaching 87.79 pence as the outlook for the UK worsened amid fears that the British economy is shrinking at the fastest pace in 18 years.

After reaching its highest level against sterling since the creation of the single European currency in 1999, the euro fell back to 87.65 pence. The strength of the euro will increase price differences on products either side of the Border.

The pound fell to its weakest level on record against the currencies of its main trading partners.

The National Institute for Economic and Social Research said the British economy shrank 1 per cent in the three months to November and that the rate of decline was “accelerating”. The institute said the economy may contract by more than that in the last three months of the year.

A report by stockbroking firm Merrion Capital said the weakness of sterling was causing “significant problems” for the Irish export sector. The most recent export data, for August, showed a 20 per cent fall in the value of exports to the UK on a year ago, the firm said.

The falling value of sterling increased the competitiveness of UK exports and Irish exports to the UK tend to be from more labour-intensive firms and are more biased towards small and medium-sized businesses, the firm said, so it would have a greater negative effect on unemployment.

Merrion said further declines in the value of the pound could lead to the Irish economy shrinking by more than 3 per cent in 2009, the consensus forecast.

Meanwhile, the US economy should show signs of recovery next year, but it will be an “anaemic” recovery, a managing director of Goldman Sachs’ investment business in New York told a conference organised by employers’ group Ibec.

Speaking at the group’s Ireland and the US investment conference at Farmleigh in Dublin, Adrian Jones, head of Goldman’s Principal Investment Area in New York, said the US economy would recover in the second half of 2009 but that “it won’t feel like it” as it would be similar to the “jobless recovery” experienced in 2002.

“It won’t seem like a recovery because it will be very anaemic,” he said in a bullish assessment of the economic outlook next year.

Mr Jones, a former lieutenant in the Irish Army, said Americans were spending 3 – 4 per cent more than they were earning and they needed to get to where they were saving 3 – 4 per cent of what they were spending.

He said consumer spending, which accounted for almost three-quarters of the US economy, fell 3 per cent over the last two to three months. He said the value of US pensions had fallen which could lead to people having to work five to 10 years longer. Goldman also expects US unemployment to reach 9 per cent.