It is amazing how the main stream media miss the really big financial stories.Last week, the BoE published data on the external liabilities of UK banks. At the risk of over-simplifying things, this number measures bank deposits of foreigners held here in the UK. What did this number show? Foreigners are pulling out their cash.
UK based banks hold huge amounts of external liabilities. In March 2008, the number peaked at almost ₤8 trillion. That is about 5 times UK GDP. However, between March and June, external liabilities fell by ₤740 billion. That represents about a 9 percent fall. As the chart above illustrates, this is not something that has happened recently.
As external liabilities were falling, UK banks were reducing their assets. In other words, they were selling off their positions in order to finance their withdrawals.
Here is a question - why do you think foreigners are pulling their cash out of the UK?
6 comments:
Hi Alice
I am a foreigner working in London and have been accumulating savings in GBP. Agree 100% on your view on UK housing. On top of the housing bubble bursting, the financial markets and hedge fund industry is facing a massive shakeout. The outlook for the UK economy is not too rosy. I think GBP remains overvalued, cost of living remains way too high vs ROW so doing business here is still uncompetitive. So I have been transferring savings out of GBP into cheaper currencies on a TWI. This trend of foreigners pulling cash out will continue.
The smart money is coming in to buy UK equities. For every seller of pounds there must be a buyer.
Aren't they pulling their cash out of everywhere? Surely it's just a sign of the massive global de-leraging unwind - people are pulling their cash out of stock markets, commodities, oil, anything to get their hands on their cash
Bappu is right, don't worry, this is only the de-leveraging technical effect...
...I truely believe that...
... it still leaves the minor problems is that all the run up since 96 was based on leveraging up....
If you think is is bad, wait until the faith in the UK goverment runs out when they have overextended themselves in bailing out the mess. The US can inflate it problems incurring lots of pain, the U.K. will go to the brink.
UK debt is too risky and the currency remains overvalued.
One of the reasons of this phenomenon is that Europeans working in London like me are repatriating their savings to Euros.
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