British POUND likely to fall further

Analysts have warned the POUND (sterling) is likely to slide further as investors frantically sell the sterling. Monday saw sterling collapse to a low of $1.478 against the US dollar and is expected to go as low as $1.20 against the dollar. The biggest fear is that the POUND will fall to parity (equality) against the dollar. The lowest it has fallen against the dollar is $1.05 in 1985.

Top 3 reasons for the POUND's fall

• Political uncertainty in the UK - We now have what is termed a "hung parliament" where no one political party is expected to have majority seats in parliament. This means that no one political party will have decision making power sending any form of negotiations into endless debates.
• Spiralling budget deficit - Budget deficit occurs when the expenditure is higher than revenues generated. And this is exactly what is happening in the UK. For instance, the UK government had to borrow £4.34 billion in January this year compared to a repayment of £5.27 billion a year earlier. As a result of the massive budget deficit, the POUND is expected to stay weak until at least 2014.
• PRUDENTIAL's acquistion of AIG's Asian arm AIA (see PRUDENTIAL to become largest insurer in Asia) also sent the sterling tumbling over fears the insurance giant might move its operations to Asia.

Although a fall in currency is welcomed and is seen as a fuel to increase exports and competitiveness, it can also be a sign of a loss in confidence in the country's currency and economy. One thing is for sure - Gordon Brown's hair is likely to go whiter and face wrinklier as his woes just seem to get worse and worse.