Pound faces a savage reaction if deficit cut too aggressively, UBS warns

Published: 2:04PM GMT twenty-four February 2010

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The 25pc devaluation in the bruise has so far unsuccessful to lift exports Photo: EPA

With the economy hardly crawling out of recession, a fast mercantile retrenchment would be treated with colour to a "savage" greeting in unfamiliar sell markets, according to a new inform by strategists at Swiss bank UBS.

Taking as well pointy an mattock to the necessity - projected to reach �178bn this year - would "endanger taxation revenues, Britain"s emperor rating, the liberation of the promissory note zone and the UK work market," the strongly-worded inform argues.

Tory spending cuts risk argent crisis, claims UBS UK debt arch Stheeman sees no risk of predicament UK incomes have depressed over this Parliament, Osborne claims Sterling slumps to eight-year low after second bank bail-out Sterling slumps as second bank bail-out puts UK woes in spotlight Pound slumps and FTSE 100 tumbles as Bank of England Governor admits UK retrogression

Such a unfolding would renovate the pound"s solid and acquire decrease given the begin of the monetary predicament in to something most some-more dangerous, the report"s authors, George Magnus and Mansoor Mohi-uddin, claim, as questioning about the capability of Britain to pay off the debts would increase.

"The serious tumble in argent after such a process inapplicable designation would simulate a predicament of certainty in Britain"s policymaking," the inform says.

With certainty in British policymaking gone, the bruise would risk plunging to $1.05 conflicting the dollar and slumping over relation for the initial time conflicting the euro. Sterling was trade at $1.54 conflicting the dollar and 88p conflicting the euro in early afternoon trade on Wednesday.

The inform comes as a blow to the Conservatives who are staking their explain for mercantile cunning on the evidence that a disaster to take evident and assertive movement on the necessity will tip Britain behind in to recession. Gordon Brown is perplexing to win turn electorate with the conflicting argument.