British Pound Struggles on Thursday as the British Economy Heads Into Recession

The British pound (GBP) dropped against the US dollar (USD) and the euro (EUR) on Thursday after the Royal Institution of Chartered Surveyors reported that Britain had the largest house price declines since the beginning of the COVID-19 pandemic in November.

According to the survey, sales and demand from consumers both declined as a result of rising borrowing prices. Investors also questioned how a rise in interest rates by the Bank of England (BoE) would exacerbate the outlook for a British recession.

Despite the economy heading toward recession, the Bank of England is anticipated to hike the bank rate by 50 basis points to 3.50% next week as it confronts inflation running at more than five times its objective, according to a Reuters poll.

According to quarterly projections, the GDP dropped by 0.2% in the previous quarter and is expected to shrink by 0.4% this quarter, fitting the technical definition of a recession.

According to experts surveyed by Reuters, the economy will contract in the first three quarters of 2023, making the forecast for the following year just as bleak.

Meanwhile, the UK is experiencing a winter of strikes as employees, including rail workers, teachers, and nurses, seek more pay as living expenses soar, which is made worse by rising energy prices as a result of Russia’s invasion of Ukraine.

Beyond real estate worries, Jeremy Stretch, head of G10 FX strategy at CIBC, noted that impending public sector strikes indicated other macroeconomic risks.

JPMorgan Expects British Pound to Drop Lower in 2023

After reaching a three-month high against the euro earlier in December, the pound dropped 0.35% to 86.39 pence earlier today. Meanwhile, the pound’s value against the dollar is predicted by JP Morgan strategists to drop by 11% to $1.08 in 2023.

A number of significant central bank decisions, including those from the BoE, the US Federal Reserve, and the European Central Bank (ECB), will be actively watched by traders next week.