Financier Jim Rogers, who has denied warning that the pound could become a 'basket case'. Photograph: Martin Argles
This note has been added on 26 February 2010: Jim Rogers has contacted the Guardian and other publications to say that he did not make the remarks attributed to him (below). They appeared in press release that has since been withdrawn. A published correction will also appear in the Guardian newspaper.
Fears of a double-dip recession and a sterling crisis in the run-up to the election were raised last night amid news of collapsing investment in British industry and a warning from one of the world's leading financiers that the pound could plummet within weeks.
The pound fell sharply on the foreign exchange markets after a day of grim economic news which saw an admission from RBS that it had missed government targets for business lending, a downgrading of the UK growth prospects by the European commission and a warning from the CBI that consumer spending was likely to remain weak ahead of polling day.
Sterling, already down by a cent against the dollar following the release of official figures showing capital expenditure plunging by almost a quarter between late 2008 and late 2009, saw its losses doubled after Jim Rogers, the former business partner of speculator George Soros, said sterling was a potential "basket case".
"Other currencies aren't strong and the euro has real problems, with cracks much wider than Greece beginning to show," Rogers said, "but it's the pound that's most vulnerable. In real terms, it's already devalued against virtually every currency barring the Zimbabwean dollar and it's especially exposed over the weeks running up to the UK election. In a basket of currencies, the pound is potentially a basket case. That will put Britain in an extremely bad position."
Ahead of eagerly awaited official growth figures this morning, loss-making RBS said weak demand for finance from companies left it well short of the targets set by Alistair Darling, the chancellor, when he allowed the bank to park troubled assets with the government. Data from the Office for National Statistics showed that investment was 24% lower in the final quarter of 2009 than a year earlier. Hopes that businesses would start to invest again late last year were dashed by a 5.8% drop in capital expenditure during the quarter.
City analysts said it was "touch and go" whether today's revision to gross domestic product data for the final three months of 2009 would show that growth was stronger than the 0.1% estimated last month. Colin Ellis, European economist at Daiwa Securities, said the investment figures were "consistent with no upward revision to headline GDP growth – although we would not rule out the possibility of changes in either direction."
Meanwhile, the European commission singled out Britain as one of the few European Union countries where growth prospects had weakened since the autumn. Brussels expects Britain to grow by 0.6% this year, compared with a previous forecast of 0.9%.
Concerns about the durability of the pick-up in activity were not confined to the UK. Shares on Wall Street fell sharply after the weekly jobless figures rose from 474,000 to 496,000. Although some analysts blamed temporary lay-offs caused by the bad weather, the persistence of high unemployment was enough to shave more than 150 points off the Dow Jones industrial average in early trading.
The CBI, despite reporting a bounce-back in high-street spending in the first half of this month, warned that the outlook for consumer spending before the expected May election was unpromising.
Andy Clarke, chairman of the CBI's distributive trades panel and the chief operating officer at Asda, said: "The next four months are going to be pretty tough. Last year was a challenge. This year will be equally challenging."
In its quarterly snapshot of spending, the CBI said supermarkets, clothing outlets and stores selling household goods had all enjoyed better trading conditions following the prolonged cold snap in January. But Clarke said rising fuel prices, pay freezes and consumer jitters over the possibility of a post-election rise in VAT meant times were tough for ordinary families.
Further evidence of the fragile state of the economy was displayed when RBS admitted more of its customers had repaid loans than were granted them in 2009. The bank was set targets by Alistair Darling to lend an additional £9bn to the mortgage market and an extra £16bn to creditworthy businesses, in return for being allowed to insure £282bn of troublesome loans in the government's asset protection scheme.
RBS lent £11.8bn to those seeking home loans, but business lending fell by £12.2bn, as customers raced to repay their debts. Overall, the bank lent £80bn in 2009 but saw £80.4bn repaid.
The data from RBS supported statistics released by the Bank of England last week which showed that lending to companies fell last year for the first time since records began. Chris Sullivan, head of RBS's corporate banking business, insisted the bank was doing everything it could to lend. "It's not about the cost of loans, it's about the confidence of the market," said Sullivan.
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