Rogers: ‘The UK is finished’ | FT Alphaville

Rogers: ‘The UK is finished’

So it’s time to sell the British peso, according to Jim Rogers, chairman of Singapore-based Rogers Holding. As sterling dropped to a record low of 127.44 against the yen and the weakest level since 2002 against the dollar (1.4133) on Monday night – on concerns the government will have to rescue more banks amid the worst recession since World War II – Rogers, investment guru and co-founder of the Quantum Fund with George Soros, told investors: “I would urge you to sell any sterling you might have.”

“It’s finished. I hate to say it, but I would not put any money in the UK”, Rogers said after Gordon Brown authorised a £100bn bail-out for banks. To add to the gloom, Rogers predicted said the currency would fall below its record low of $1.0520 reached in February 1985.

Analysts and currency strategists on Tuesday evidently felt the same way. The Commonwealth Bank of Australia lowered its forecast for the pound to $1.50 by the end of June from a previous estimate of $1.60, citing a high risk of a cut to the UK’s credit rating outlook. Richard Grace, CBA’s chief currency strategist, warned in a note on Tuesday that UK debt may now be greater than forecast due to the government’s additional bank bailout plans and cited the “high risk” of a downward revision to the ratings outlook for the UK:

The UK budget deficit is forecast to widen as the economy contracts over 2009. Public sector net borrowing (PSNB) is set to rise from 2.6% of GDP in 2008 to 8% of GDP in 2010. Net UK public sector debt is subsequently forecast to rise from 36.3% of GDP to 52.9% of GDP in the year to March 2011. The risk is these debt numbers are greater than forecast due to the additional bank bailout plans announced by the government since the publication of the government’s pre-Budget report on 24 November 2008.

Arguing against a downward revision to the UK’s outlook is a recent improvement in the UK’s net international liabilities position from 29% of GDP to 21% of GDP over the last 12 months and a slight narrowing in the UK current account deficit as a percentage of GDP. Having said that, a series of larger budget deficits will put some widening pressure on the UK’s external liabilities.