The Struggle Continues for Sterling

Will we see pound sterling exchange rates continue to fall?

The pound has traded more weakly in recent weeks as evidence of a slowdown in the UK economy persists.

The Bank of England has also indicated it is now most likely finished raising interest rates. Higher interest rates are in general a reason for currency strength.

Signs of a lower interest rate are therefore typically likely to lead to currency weakness.

In the last 24 hours, the Bank of England chief economist Huw Pill, has stated interest rate cuts could be due in the summer of 2024.

Bank of England sees recession risk as more likely

The risk of recession has increased according to the Bank of England. In their most recent interest rate decision last week, they signaled a 50-50 chance in 2024.

Higher interest rates have been used to combat high inflation in the UK, but this is now having a detrimental effect on the economy.

Higher interest rates reduce business spending (as borrowing is more costly), reduce investors appetite to invest, and reduce consumer spending.

The knock-on effect is slower economic growth, which of course if negative, would lead to a recession. A recession is two successive quarters of negative economic growth.

Recessions then carry their own economic costs, with higher unemployment and less tax paid, which can further exacerbate economic problems. None of this is in principle good for an economy, and could be reasons for sterling weakness in 2024.

Will the Bank of England cut sooner?

The Bank of England by their own admission is not necessarily going to be cutting interest rates anytime soon. However, with economic growth numbers due Friday this week, we will get the latest snapshot of economic growth in the UK.

This could lead to investors weighing up the Bank’s recent comments on both the recession risk and the potential for a cut in mid-2024.

The FX markets are constantly moving and sentiment can change very quickly. If you have a transaction to consider, our expert team can guide you through the markets and the latest news.

We can help you to make informed intelligent decisions regarding your currency exposure and international payment plans.

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