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Could a UK recession apply further downward pressure on the Pound?

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Last week the Bank of England voted to keep interest rates on hold at 5.25% as expected by the markets.

Financial analysts now believe that the Bank of England has completed its current cycle of interest rate hikes with the attention now turning to how long the BoE will keep interest rates at the current elevated levels.

The Pound remained quite flat against the Euro as a result of the decision, but due to some US Dollar weakness the Pound to US Dollar rate actually climbed at the end of the week.

At the time of writing, GBP/EUR is trading at 1.1540 and GBP/USD has climbed up to 1.2400.

The voting pattern from the BoE monetary policy committee was clearer this time, as the decision to keep rates on hold was voted for by 6 members to 3 this time round. Previously, the vote was 5 to 4 so there appears to be a clearer direction regarding monetary policy now.

On Wednesday, the governor of the BoE, Andrew Bailey will be speaking and I would expect markets to follow his tone very closely to try and gauge the BoE’s plans moving forward. Comments alluding to when the BoE could begin to start cutting interest rates could impact the Pound’s value, and the current expectation is around Q3 of next year.

On Friday this week perhaps the key economic data release is due, as GDP figures are due for release. Both MoM (Month on Month) and QoQ (Quarterly) figures are due and with some analysts believing that the UK is about to enter a recession, these figures could also impact GBP exchange rates.

The quarterly figure is expected to be the key one here, with a contraction of 0.1% expected to be released.

The post Could a UK recession apply further downward pressure on the Pound? appeared first on Pound Sterling Forecast.


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