GBP outperformance on yield given the slower timing of rate cuts in the UK unlikely to last – MUFG – Crypto News – Crypto News
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GBP outperformance on yield given the slower timing of rate cuts in the UK unlikely to last – MUFG – Crypto News

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GBP outperformed in 2023 as rebounded from weak levels. Economists at MUFG Bank analyze Sterling’s outlook.

BoE caution over cutting rates could support GBP in early 2024

The GBP has outperformed in 2023 as the negative shocks from Liz Truss’ mini-budget in late 2022 and the hit to the UK’s terms of trade from higher energy and food prices have both eased. It leaves the GBP less attractively valued heading into 2024.  

The GBP could benefit further at the start of next year from the BoE’s relative caution to cut rates compared to the ECB & Fed if core and services inflation in the UK continues to ease more slowly than in the Eurozone and the US. However, we then expect the BoE to play catch up by cutting rates later next year when persistent inflation risks subside.  

We expect the GBP to weaken later in 2024 when evidence builds that the UK economy is being hit more with a lag from higher rates. Weak growth is set to continue next year. even as the cost of living shock has eased.  

 

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