By Matthew Vassallo
The Pound has found life tough going over the past week, following the Bank of England’s (BoE) decision to pause the interest rate hiking cycle at their recent policy meeting. The markets’ initial dovish reaction to the central bank’s decision came as no real surprise, with investors’ initial negative response to the rate decision likely cemented following BoE governor Andrew Bailey’s subsequent public address. During this speech Bailey refused to commit to a shift in the BoE’s strategy of raising the UK’s base rate to try and counter inflation levels, which continue to sit at levels well above the central bank’s target of 2%.
Whilst inflation numbers fell slightly for August, it would seem the modest decrease was not sufficient evidence to convince them that their strategy of hiking rates over the year and beyond, was unequivocally having the desired effect. We only have to look at the 5-4 split amongst the BoE members as evidence, that even at the highest table there is little continuity.
Looking at the current market sentiment and it’s easy to feel somewhat deflated by the UK’s current economic standing. So much so that having started the summer as the top performing G10 currency year-to date, Sterling had unwound almost all those gains by the end of it. A weaker outlook in Europe has yet to markedly impact the Euros value, but regardless of this, the UK’s trade links and beyond remain inextricably linked and reliant on a buoyed EU economy, so any slowdown in this sector inevitably impacts negatively on the UK’s economic output.
The growing concern surrounding the UK’s economic fragility, comes from the new forecasts emanating from key financial services institutions. As an example of this, senior currency analysts at Goldman Sachs have slashed their own GBP forecast for Q3 & Q4 of this year. Considering Goldman has consistently been on the right side of the Pound’s rally over the course of the past 12 months, this recent shift will hold credible weight amongst investors.
Perhaps the most poignant reference though regarding the UK’s current economic standing, is that the current forecast levels are consistent with previous values reached during – of all the recent disastrous faux pas one can imagine – the now infamous Liz Truss minibudget.
What was it that D.Ream touted in their 1993 hit single?