Ascendant takes a look at the UK Economy as Pound Sterling hits a purple patch

Economic forecasting is a difficult and complex task, and even the most respected forecasters are often wrong. Many of the acronym institutions (IMF, OBR, BofE, IFS, NIESR….) have all started to cautiously revise upwards their view on the UK Economy.

To be fair, the consensus outlook for the UK was weighted heavily to a negative tone, as such the year-to-date economic numbers have surprised on the upside. With inflation also remaining stubbornly high, expectations are on the Bank of England (BofE) to hike interest rates at least once in the coming months.

In the currency markets, Sterling has been well supported by the strong numbers, reflected in its recent best in class performance against other G10 currencies. Most notably against the US Dollar Sterling has traded seven cents higher than early January, hitting 1.2545 from 1.1837. Against the Euro, Sterling remains flat, without any significant dips in the trading range

The hot question from clients who are mostly importing; is this purple patch for Sterling a sign of a more positive trend upwards or are there corrections on the horizon? An answer is prefixed with the forecaster caveats of knowns and unknowns. The view still holds that 2024 is likely to be a subdued year in comparison to recent history for the Pound. Sterling, for now, is seen in a slightly more favourable light than before, with the risk premium of sharp volatility perceived to be less likely. The forecasted 2023 ranges hold firm (US$ 1.1650 to 1.2650 and Euro, 1.1050 to 1.2150) indicating against the US Dollar sterling may be near the peak of its gains.

Kamal Sharma, of Bank of America commented “We have witnessed a rare event where the GBP trade weighted index has delivered positive returns in the first three months of the year, only the second time in 25 years and with positive April seasonality also exerting its influence, we could see an unprecedented fourth,”

The Euro has held its own, as fears dissipated associated to gas supplies and prices over the winter. The European Central Bank has signalled more interest rate rises are also likely, which has supported the single currency versus the US Dollar. With the Euro also recently up against the US Dollar the downside risk for the Pound versus the Euro still lingers. Whilst year to date the Pound to Euro rate has been stable, the exchange rate has not breached the halfway point of the forecasted 2023 range (1.1050 to 1.2150).

With cost pressures still challenging for Businesses, reviewing the costs being incurred and the strategy of managing currency exposure becomes even more important. Specialist support as provided by companies like Ascendant, can fill a gap not provided by larger financial institutions.

Ascendant would love to hear your views and perspective on the expected performance of Pound Sterling for the rest of 2023, just contact us on the email below or for more information on how Ascendant can benchmark your current supplier and to hear about how we are reducing the cost of foreign exchange for local businesses, contact Karen Benson.