ALEX BRUMMER: Riding out the fall in sterling's value

There is a long-standing tendency in Britain to treat a fall in the pound’s value on the foreign exchange as a national emergency. This dates back to 1967 and the late Harold Wilson’s promise that the ‘pound in your pocket has not been devalued’ and the ignominious exit from the Exchange Rate Mechanism (the precursor of the euro) in 1992.
Both events, stoutly resisted by respective governments with now unthinkable rises in interest rates, left the impression that an involuntary fall in the currency reflected badly on  economic confidence and the nation’s standing.
Hopefully, the present generation in Downing Street and at the Bank of England can look at events with a little more perspective.

Down: The sterling is close to a 15-month low against the single currency

Certainly, a falling pound is not terribly good for the consumer. It means higher prices for imported goods and in an open economy, such as that of the UK, that is not a good outcome. A weak exchange rate is especially painful at present coming as it does after a long period when household incomes have been squeezed.
There is an inevitability about the present fall. The British government, like those of the US and Japan, has been an aggressive user of quantitative easing, the printing of money, so there is up to £375billion of extra cash swilling around the financial system.
As importantly, the failure of growth to materialise at the speed that has been forecast has made the fiscal adjustment much more difficult.
The result is that public sector borrowing has failed to fall at the pace that has been hoped for and that debt will not start to come down from the eye-watering levels of 91.5 per cent of output (an IMF figure) until 2016 at best.
This is now being seen by hedge funds, the modern equals of Wilson’s gnomes of Zurich, as an excuse to dump pounds.
As a result, sterling has drifted down to $1.5472 against the dollar and is close to a 15-month low against the euro. The speculators are betting that in the immediate aftermath of the March budget, Britain’s proud ‘AAA’ credit rating, that has survived five years of financial crisis, will be removed.

Even if it were, it should not be regarded as a national tragedy. The Americans lost their top rating 18 months ago with no perceptible difference to their fund-raising capacity and France has also seen its rating drift down.
Indeed, in many ways the decline against the euro looks daft. Recent data suggests that Britain’s economy will be more robust than most of Europe over this year and next. And despite the sharp internal wage devaluations inside the European periphery a full-blown recovery is still a long way off and the banking crisis is still to be fixed.
One person likely to be looking at the present depreciation of sterling with some satisfaction is the Governor of the Bank of England, Sir Mervyn King.
He has long been of the view that there need to be exchange realignments with the currency of surplus nations rising and those of deficit countries like Britain falling.
All of this makes David Cameron’s trip to India and the current export drive much more relevant.
Britain needs to trade its way out of stagnation. A competitive pound that makes our cars, war planes and financial services cheaper might help produce that adjustment.
Claw back
The biggest test of Barclays chief executive Antony Jenkins to create a new ethical bank is upon us.
He has done some headline-catching things, like axing the bank’s dodgy tax avoidance department. Now comes the real test.
Is he willing to take on senior staff who are entitled to a rich cocktail of share awards? Among those entitled to bonuses are Jenkins himself, head of the casino bank Rich Ricci and former finance director Chris Lucas, currently under investigation over Middle East fund-raising in 2008. Jenkins needs to show that no longer is the bank intoxicated with big awards and genuinely wants to make  Barclays the ‘go to’ bank.
That means clawing back the bonuses and using the money to boost capital.
Soft landing
BAE has looked like a company searching for a new role since the humiliating withdrawal of its merger proposal with European aerospace champion EADS last year.
Maybe it is finally finding a new way forward. A new five-year deal with Vodafone, on providing cyber security for mobile devices, could be a rich source of revenues.
Through its Detica offshoot, BAE has a lot of the security technology that much of the commercial world craves. Whether it has the management capable of undertaking an IBM-style transformation, from hardware to software, is more questionable.