The U.K. may still be in recession and its public finances hardly look healthy.
But, compared to the high level of uncertainty attached to the U.S. and the euro-zone economies, the U.K. still looks like the place to go.
Gilt yields are once again on the decline as investors turn to the safe haven of U.K. government bonds, and the sterling index is testing its July high for the year back up at 84.70.
To many, this interest in the pound may be surprising.
The U.K. economy has repeatedly failed to recover as expected this year and there remains no hard evidence that the country has benefited from the feel-good factor associated with this summer's Olympic Games.
With the government's tax take failing to meet forecasts and with spending cuts proving even more difficult to implement, the budget deficit is failing to meet targets and the ruling coalition under Prime Minister David Cameron is under even more pressure to relax its fiscal discipline and start spending its way to recovery.
Whether recent economic data paint an entirely true picture of the economy remains uncertain, however. Bank of England Governor Mervyn King surprised financial markets last week with suggestions that the economy could finally be starting to improve.
King did qualify his comments by warning that the euro zone poses a "black cloud of uncertainty" and said that the government might well be justified in missing its debt targets given the slow growth in the global economy.
Nonetheless, the U.K. still appears to be offering an attractive alternative to other major economies.
Initial euphoria about the European Central Bank's bond-buying program and its ability to resolve the euro-zone debt crisis is rapidly disappearing.
In fact, the euro appears set to dive as the Spanish government faces the nearly impossible situation of squaring political pressures at home with the demands of its creditors abroad.
Without that, Madrid is unlikely to seek the ECB bailout it needs and its borrowing costs could start spiraling higher again.
Disappointment that the ECB's latest plan is failing to live up to expectations is matched by concerns that the U.S. Federal Reserve's decision to introduce an unlimited dose of quantitative easing is also failing.
New data this week may have shown that U.S. consumer confidence is bouncing and that house prices have risen but there remains a distinct lack of evidence that the additional liquidity provided by the Fed will help to sustain this trend in the longer run. Moreover, the end of tax subsidies early next year, the so-called 'fiscal cliff', may yet send the economy straight back down again.
At the moment, expectations of a regular end-September payment from the European Union of the U.K's annual farm subsidy may be contributing to sterling's strength.
But the pound could have another source of power: the speculative short positions that have yet to be covered and which could provide the currency with an extra lift if the investment community now decides that sterling is definitely a better place to be than its even-more-troubled U.S. and euro-zone counterparts.
(This is an opinion column by Nicholas Hastings, who is a Senior Correspondent in London for Dow Jones Newswires and has written about foreign exchange for more than 20 years. He previously covered a variety of markets, including equities, fixed income, commodities and energy. He can be contacted on +44-20-7842-9493, by email at nick.hastings@dowjones.com or on Twitter @NickHastingsDJ)
