On October 20, Liz Truss resigned as Prime Minister of the United Kingdom, becoming the shortest-serving British prime minister in history. Despite the policy changes, the British pound continues to have structural problems. Even when structural concerns are less dominant, cyclical forces may continue to weigh on the pound, according to HSBC economists.
The downward pressure on the pound will continue
“UK debt-to-GDP ratios are set to rise, and net supply of gilts could top £250bn, a new record. The UK fiscal deficit could be around 6% of GDP. It should be noted that the UK’s core balance (ie current account balance + net foreign direct investment) has moved from a surplus of 2% to a deficit of around 8% of GDP in the last two years. May all these structural challenges continue to pull GBP/USD lower.”
“GBP could suffer from a tone from the BoE that suggests the economic outlook may be even weaker than expected, and the market is too dovish about a rate hike.”
“Even as the market’s focus shifts from structural concerns to cyclical forces, a combination of weak growth and high inflation facing the UK will likely see the GBP struggle.”
Source: Fx Street
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