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To: Ahda who wrote (16890)	8/29/1998 10:29:00 AM
From: goldsnow	Read Replies (2) \| Respond to of 116822

Surely trader would try currencies one by one that would fail.... Russian shockwaves may prompt early UK rate cut 09:30 a.m. Aug 28, 1998 Eastern By Jennifer Scott LONDON, Aug 28 (Reuters) - The financial crisis sweeping the world's emerging economies has increased the chances of recession in Britain and upped the odds of an early interest rate cut, economists said on Friday. The prospect of a fall in worldwide demand, coupled with a pound strengthened by investors seeking safe havens, could hit the already battered British export sector and prove the final straw for fragile consumer confidence. ''We've changed our view to show that instead of just trimming rates from the beginning of next year, the Bank of England is now more likely to start cutting from November,'' said Mike Dicks, economist at Lehman Brothers. The interest rate futures market agrees. In the last few days alone, it has shown a shift in expectations from no change in rates before the end of the year to at least one cut by Christmas. But Dicks said the market was underestimating the room for cuts in 1999. He forecast rates could fall as low as 5.75 percent by the end of next year from their current 7.50 percent. His forecast reflects his firm's thinking that the risk of a recession in Britain has risen from 20 percent to 40 percent. Greater global integration means Britons can no longer afford to turn a blind eye to problems in countries such as Russia, where a financial crisis is intensifying by the hour. While Britain has limited trade links with emerging economies -- Latin America, eastern Europe and Asia account for just over 17 percent of goods exports -- knock-on effects will take their toll. One of the most important is the prospect of a continuing strong pound, as anxious investors pile into the perceived safety of sterling assets and drive up the currency. ''If the Russian crisis drags on, that could lead to sterling remaining strong for the next six months or so, which will put further pressure on exports,'' said James Nixon, research fellow at the London Business School. ''That could push Britain towards recession.'' The shockwaves spreading from Moscow could not have come at a more awkward time for Britain. The economy is slowing and manufacturing has dipped into recession as exporters struggle to survive in the wake of a strong pound and weaker demand from Asia. If the pound stays at its current level around 2.95 marks -- above the Bank's forecast going forward -- it would have an effect equivalent to a tightening of monetary policy. ''If the Bank does nothing, in a sense it is saying we are happy to live with tighter monetary conditions -- tighter than we forecast -- and that will obviously have a big impact on the export sector,'' said Dicks. Weaker global demand is another worry for the already vulnerable British economy. It is not just Russia that is on the brink. Much of southeast Asia is in recession and the risk of financial crises spreading to other emerging economies has prompted some economists to consider the prospect of a 1930s-style global depression. Add to that the risk of an extended slide in share prices in London and the chances of a severe slowdown in British economic growth increase. Dicks said he had lowered his forecast for growth next year to 1.2 percent from 1.7 percent. Confederation of British Industry chief economist Kate Barker also noted knock-on effects from the emerging markets crisis would impact on the British economy. As well as the concerns over sterling and global demand, she cited greater competition for British firms from cheaper Asian imports and said UK manufacturers may start cutting their investment plans in the wake of such uncertainty. ''We must be careful not to overreact in the short term,'' she said. ''But if the Russian crisis does spread, it could lead to a higher pound and put a greater squeeze on manufacturing and therefore the overall economy.'' The CBI forecast an early cut in interest rates -- of a quarter point by the end of this year. ((London newsroom +44 171 542 7715, Fax +44 171 542 6726, jennifer.scott+reuters.com)) Copyright 1998 Reuters Limited