The GBP has recently been at one of its weakest points in recent history. Poor governmental choices, inflation, and a multitude of other factors have led to sterling steadily becoming weaker, with goods and services only becoming more and more expensive.
Whether you have been paying attention to the news, following the markets, or using the UK TradingView, the GBP prospects are looking uncertain, with experts and analysts unsure of what will happen in the coming weeks, let alone months.
Liz Truss, the recent but former UK PM, and her financial chancellor Kwasi Kwarteng pushed a mini-budget only a few weeks ago. Designed to shock the economy back into action by cutting taxes and increasing borrowing, the plan had the opposite effect and sent the economy into the ground.
However, considering what a catastrophe the mini-budget and “Trussenomics” were, Rishi Sunak replaced her as PM and did an immediate U-turn on the policies, looking to steady a sinking ship.
Much like any other economy, political uncertainty has a massive effect on the economy. Considering the UK has had three different PMs in only a matter of months, GBP sentiment is at a low, with no end in sight.
If you combine this with other issues that will be covered later, such as the cost of living crisis and the potential for a recession, it is unknown when the pound will stabilize again, even though it has shown strength in the past few days.
GBP vs. USD
One of the most significant changes that have happened is the combination of a weakening GBP and a strong USD. This means that the USD has been closer to parity with the GBP than it has been in several years.
The mini-budget sent the GBP to a 37-year low against the USD and pushed it over the edge at the end of a run that has seen it become increasingly weaker. Considering the US dollar is the world’s leading currency, weakening against it only means goods are going to be more expensive, in particular, oil.
The threat of a recession is still in the headlights of the UK, but the government is attempting to overturn these fears by changing policies put in place by Liz Truss and her government. The surging energy and goods prices are driving these fears, and the government, banks, and investors know this.
While the government is doing its best to avoid a recession, it is becoming increasingly clear that it is a very strong possibility if things don’t change quickly enough.
Cost of Living Crisis
The cost of living is rising across the globe, in part due to the war in Ukraine, which has sent oil and gas prices and imports through the roof. Brexit has also played a significant part, as the depreciation of the pound has caused rising import prices.
As mentioned, while parts of Europe and the United States are facing similar problems, the weak pound, which has only become weaker, is now exacerbating the problem. Not to mention the fact that wages aren’t rising with the cost of living and inflation, causing the poor to only become poorer.
Future of the GBP
While the UK and the pound are not completely sunk at the moment, the future is looking very uncertain. Many believe that a serious overhaul is needed not only to right the ship again but to cause some growth that can bring strength back to the economy.
Banks and investors are betting on the recent gains the pound has made against the US dollar and euro and are seeing it as the start of a slow rise again. However, with a recession still on the cards, a lot needs to change to prevent this current house of cards from falling.
The Bank of England has recently hiked interest rates too, and with another hike on the cards still, the pound needs to recover incredibly quickly if it is to attract investors again. While not entirely impossible, time is not on its side, and with the year closing out soon, the government has a monumental amount of work to do in a fraction of the time that they need.