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UK exchange rate moves to five-month low

The Bank of England has today issued a rather negative report on the UK economy which would suggest that the current exchange rate, especially the pound to the euro and the dollar, is unsustainable in the short term. As a consequence, the UK currency has fallen to a five-month low against both of these leading currencies and there is an expectation of further downside in the short to medium term. So what is happening?

It seems that a mixture of the ever spiralling budget deficit, a lack of foreign investment in UK assets and the country's reliance on the financial services sector may well hold back the UK economy in the short to medium term. While a reduction in the exchange rate will make UK assets more attractive to overseas investors, it could well increase the cost of living in the UK in the short term.

Even though many people believe that the UK economy has moved ahead over the last few weeks, it would appear that for some reason the speed of change is much slower than with European counterparts and the US. As a consequence, the UK is being squeezed with many blaming the ever increasing budget deficit and national debt for the apparent drag on recovery.

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