Economist dismisses dollar-pound exchange strength

Companies looking to do business in the United Kingdom shouldn’t expect any short-term gains, an economist says, despite the Australian dollar hitting a 27-year high against the British pound.

On Tuesday night, the Australian dollar rose to 67.96 pence – its highest level since 1985 – and hovered around that level for most of yesterday.

The dollar-pound exchange rate has almost doubled in the past three years – a major bonus for Australian tourists, particularly those planning to head to London for the Olympic Games in July.

But CommSec economist Savanth Sebastian says it won’t have much of an impact on Australian companies, claiming it is better news for importers than it is for exporters.

“From a business perspective, doing business in the UK is not going to be as popular,” he says.

“The UK economy could go into recession and the whole region will experience relatively sluggish growth, so I don’t think the prospects are all that great [for Australian companies].”

It’s been revealed Britain’s unemployment rate rose to 8.4% in the three months to November – which is the highest level in 17 years – confirming business conditions are indeed grim.

“The unemployment rate was 8.4% of the economically active population, up 0.3% on the quarter,” the Office for National Statistics said in a statement.

“There were 2.68 million unemployed people, up 118,000 on the quarter. The unemployment rate has not been higher since 1995 and the number of unemployed people has not been higher since 1994.”

In a bid to attract businesses to the region, the UK Government has launched a series of initiatives including Go UK, a business plan competition aimed at Australian companies.

The government has also launched the Start-up Games, which coincide with the London 2012 Paralympics, to be held in a start-up hub known as Tech City, in East London.

Sebastian says while the Olympic Games will draw tourists to the UK, the business opportunities have already been picked up by local companies.

“Right now, it’s the tourism factor that drives at least a degree of strength for businesses in the UK. I’m not sure there will be much of an impact for Australian businesses,” Sebastian says.

“In terms of business investment, if you’re looking at it from a longer-term perspective and had planned to move to the UK, you couldn’t get a better time because the dollar is at a high.”

“But there wouldn’t be much in the way of short-term gains.”