By Mansoor Mohi-uddin
Chief Economist
- The UK’s economic and political crises are increasing the risk of a GBP collapse,
similar to 1985 when 1.05 was reached against the USD.
- Inflation is at three-decade highs above 10%. The economy is set to enter recession
as Russia causes European energy prices to soar, and industrial disputes over pay
are worsening.
- At the same time, UK public services are near breaking point after the pandemic, Brexit
continues to disrupt trade and the government is paralysed until a new prime minister
starts.
- The Bank of England has lifted its Bank Rate to 1.75%. We expect a 50bps September
rise and 25bps in November and December. But rate hikes may not avert a GBP collapse
this year.
Source: AFP
The UK’s crises are raising the risk of a GBP collapse. The currency has fallen to 1.17 against the USD, near its lows of 1.15 after the UK voted to leave the European Union as the first chart shows. A sudden loss of investor confidence now could see a test of its all-time low of 1.05 in 1985.
Source: Bank of Singapore, Bloomberg.
This summer the UK is suffering several crises.