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Pound Sterling GBP Forecast to Suffer on London Property Bubble Fears

October 30, 2015 - Written by John Cameron

Pound Sterling to Euro Exchange Rate Approaches 1.40 Today

The Pound Sterling (currency : GBP) has enjoyed a good run in the global currency markets since the bout of heavy selling pressure which it endured earlier in the month.

The trigger for the shift out of Sterling-denominated assets proved to be September’s Consumer Price Index inflation data, published by the Office of National of Statistics, which showed that for only the second time since the 1960s, the UK economy has slipped into deflation last month.

However, the Pound has posted a marked improvement against the other major global currencies since the numbers were released, but today’s session has brought the publication of a report which threatens this near-term renaissance.

UBS Predicts UK Housing Bubble to Weigh on Sterling Demand

Leading investment bank UBS issued the research document which suggested that London’s property market is currently experiencing the world’s most pronounced housing bubble.

The Global Real Estate Bubble Index compared average incomes to average property prices in the cities surveyed and the UK’s capital came out on top, recording a score of 1.88 versus second placed Hong Kong’s result of 1.67.

UBS noted that London’s, ‘average real dwelling prices have soared by almost 40% since the beginning of 2013, more than offsetting all losses triggered by the financial crisis. The increase has made London one of the most expensive cities in the world based on price-to-income and price-to-rent ratios that have surged to all-time highs. It takes a skilled service-sector worker approximately 14 years of average earnings to be able to buy a 60 metres squared dwelling; the expense of buying a flat is comparable to renting it for 30 years.’

GBP to EUR Conversion Rate Forecast to Track Lower to 1.4

Surprisingly, the UBS survey found that the cities least susceptible to a property crash were New York, Chicago and Boston.

If London does indeed suffer the ‘substantial’ price correction that UBS fears, then analysts forecast that the Pound Sterling US Dollar exchange rate will track lower towards the 1.4000 GBP USD threshold.
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