A huge preponderance of FTSE 100 business is actually non UK centric and as such profitability (in Sterling terms) should be reasonably well enhanced. If the pound remains at these lowly levels many quoted companies may well surprise to the upside on their numbers. Anyone to go down should be careful.



I am not a great believer in the power of a weak pound to benefit the UK economy. Only 13% of the UK business is now involved in manufacturing and an even smaller percentage involved in actual ?export? manufacturing.

The fall of the pound will impact all 100% of the population but will economically only benefit a small fraction. In effect British asset values have fallen some 40% in world terms in just one year. This makes us all very much poorer than we were at the start of 2008 (it is just that we have not noticed it yet).

The vast majority of the Durable and Semi Durable goods purchased from the various retailers are sourced from abroad. Either we will have to buy considerably less or the country will slip further and further into debt. Going by past experience the latter is the more likely.

As Simon Denham of recently commented, ?the best hope is that the pound remains weak and foreign manufacturers decide that it is cheap enough to set up here. In truth, it would need a shift of seismic proportions to make the UK a favoured destination in comparison to China, India, Vietnam etc. And even these countries are suffering at the moment anyway?.

We cannot discount a reasonable rally in the first part of 2009 as the general valuations appear very fair at current levels.

Unfortunately the major problems remain though. Banks continue to struggle to improve their capitalisation. If land and property values continue to fall and if marginal (generally heavily indebted to the banks) companies continue to fail and if unemployment continues to rise then the poor performing debt books are likely to get considerably larger.

Banks may yet have to dip into the public purse once more and this will dilute share holders almost out of existence.

The huge interest rate level of 12% enforced by the State is not only unjustified it is also self defeating. The politicians are telling off the bankers for bankers asking for good returns on their money (maybe a few percent over Libor) whilst the politicians do far worse themselves. This is hypocrisy of biblical proportions.

Not only this, it also lays down a sort of benchmark. Now nobody will recapitalise the banks on anything less than the terms set down by the Treasury. This forces the banks to concentrate on reducing their state liabilities rather than using excess capital to increase lending.

Without a strong banking sector everything else will struggle in the long term. We will simply be more exposed to whatever else the world economy throws at us in 2009 than many of our competitors.

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