Special Report: Global Financial Crisis 

     by Dongying Wang

    LONDON, Jan. 6 (Xinhua) -- Although a devaluating pound has triggered speculation that Britain may move closer to the euro, many believe it is unlikely the country will adopt the European single currency in the near future.

    The Bank of England in the face of the current global financial crisis, slashed the interest rate over a period of two months from 4.5 percent to 2 percent in early December.

    The country's interest rate, now at an all-time low in more than 50 years, has triggered a disturbing devaluation of the pound.

    One euro is now worth 96 pence, a rise from 77 pence in October2008. The dollar has also gained in value against the pound, rising from 57 pence to 69 pence within three months.

    The lower base rate is expected to give fresh impetus to economic growth, and consumer and business confidence in Britain. It is also thought to benefit British exports and tourism, and offset economic losses during the downturn.

    However, some analysts warn this may not save Britain from sliding deeper into recession.

    They say Britain faces a difficult year ahead and may see a 2.9 percent gross domestic product (GDP) contraction in 2009.

    If the predictions are correct, it will be the worst one-year fall for Britain since World War II. The outlook is truly bleak with forecasts of rising unemployment -- up to 1,600 people losing their jobs every day throughout 2009.

    The worrying economic situation has prompted some in Britain to consider dumping the pound in favor of the euro.

    Supporters believe that euro membership will help Britain to weather the hard times.

    A total of 16 out of the 27 European Union (EU) member states have adopted the euro as their official currency. The euro was formally launched on Jan. 1, 2002 to promote economic integration within the EU.

    However, a recent poll showed that 70 percent of Britons still reject the currency.

    Many argue adherence to the pound enables Britain to maintain its economic autonomy. They believe the country's current economic depression is temporary, and the pound will return to a favorable position against the euro in one or two years.

    Nevertheless, the shock inflicted by the financial crisis on the British economy is also obvious, and a weaker pound has its negative effects.

    During the third quarter of 2008, Britain's productivity, measured by GDP per worker, decreased 0.2 percent on a yearly basis; business investment fell 1.3 percent from the previous quarter; and services output dropped 0.2 percent from the previous three months, according to the British Office for National Statistics (ONS).

    Britain's public sector net debt, expressed as a percentage of GDP, stood at 44.2 percent at the end of November 2008, as against43.1 percent a year ago. The debt is rising rapidly as the government spends billions to support banks and the economy.

    A weaker pound will also result in increased costs for British consumers, who heavily rely on imports, ranging from food, manufacturing goods to energy.

    The price of imports will continue to rise, adding further to Britain's trade deficit with the EU, which rose to 3.4 billion pounds (5.0 billion U.S. dollars) in October from 2.8 billion pounds (4.1 billion dollars) in September.

    Energy is also an issue that needs addressing when the pros and cons of a weaker pound are discussed.

    Oil and natural gas reserves in Britain are depleting, forcing the country to rely more on imports. A weaker pound will worsen the situation.