The UK gilt market has continued to recover following government plans to tighten fiscal policy earlier this week. However, the pound is unlikely to post a sustained rebound, report economists at MUFG Bank.
Fiscal policy tightening will be less support for growth
“We continue to believe that the pound is vulnerable to further weakness now that the gilt market is more stable again.”
“Fiscal policy tightening will be less supportive of growth as the UK economy already faces a high risk of slipping into recession, and while financing conditions are improving, they are likely to remain tighter than expected.” before the mini budget.”
“Now there is also less pressure on the Bank of England to raise rates as much as expected in the UK rate market (>5.00%), which will cause some disappointment and weakness in the pound.”
Source: Fx Street
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