By Lauren Buckner
The squeeze on consumer spending continues to drag in the UK despite the green shoots of spring seen this week in the weather, and the Pound continues to look for direction in a tight trading range with both the euro and the US Dollar.
With unemployment increasing for the first time in four months to 3.8pc, and inflation still in double digits, it’s clear that the UK economy is lagging behind both the EU and the US in recovery from the pandemic. Retail sales figures this morning echo this sentiment as we curb back on spending due to the squeeze on finances. Falling more than expected at 0.9pc for March (expected -0.5pc) its clear that there is a squeeze on spending power amongst UK consumers as they battle 40 year highs on food price rises.
Despite the drop in wholesale energy prices – still lagging considerably lower than the drop in Europe – higher interest rates, and a challenging credit environment – the outlook for the UK economy has improved, which is no doubt contributing to the Pounds current value. Steadying at the higher end of this years trading range Sterling sellers should still consider an exchange as good value for money, despite this domestic gloom.
The IMF (international monetary fund) continues to predict that the UK will be one of the worst performing economies in 2023 with expectations of a 0.3pc contraction in the economy. However, having previously predicted a decline of 0.6pc this is actually a positive for the UK and the Pound. Business sentiment from large companies is also on the rise at its sharpest rate since pre-pandemic (Q1 2020), citing the new Windsor framework and refreshed working relationship with the EU as offering a rosier outlook. Small business sentiment unfortunately lags behind with insolvencies seeing a sharp rise – a large disconnect in business conditions for now.
Sterling’s resilience no doubt hinges on the continued higher inflation levels. This is because this mounts increased pressure on the Bank of England to raise interest rates further at their May meeting. Higher interest rates encourage investment in to a country’s economy at the prospect of higher and faster returns, so perversely the current consumer woes around inflation is actually boosting Sterling to settle at its current rate of exchange. Despite looking expensive based on historical levels – the value of the Pound is bucking the trend and offering good value!
For those looking to buy the Pound, the opportunity to do so before we see a further interest rate rise or further examples of the economy performing higher than Q1 expectations should not be overlooked. The continued uncertainly means only the brave should take a gamble. Please get in touch with the team to discuss further.