Last week Deutsche Bank’s research team argued that the UK was in danger of suffering an old-school balance of payments crisis, due to its woeful economic dynamics. Barclays has now waded into the debate, calling this a “crisis fairytale”.
To back its argument, Barclays uses this chart showing the German current account weakening in line with the UK’s, to underline how this is a symmetric terms of trade shock.
Of course, eagle-eyed readers will spot the pretty heinous dual-axis chart crime quickly, with Germany’s current account surplus still massive. Perhaps there is an element of Barclays just rushing to the defence of its domestic market here.
However, we’re inclined to agree that what will mostly matter for currency markets is the stance of their respective central banks, and the Bank of England is expected to be far more hawkish than the European Central Bank. If the BoE does jack up rates much more aggressively — which seems likely — then sterling’s recent weakness versus the euro is likely to fade, Barclays argues.
However, Barclays analysts DO highlight another major danger lurking.
