Analysts at Rabobank continue to see difficult times ahead for the British pound. They point out that while expectations of a more prudent fiscal stance by the government inspired some bargain-hunters this week, the outlook for the pound remains troubled.
“The release earlier in the week of a much worse than expected print for UK August GDP data suggests that the economy is already sliding into recession. The economy shrank by -0.3% m/m following a downwardly revised expansion of just 0.1% in July. Given the extra bank holiday in September, which will weigh on output, it now appears very likely that GDP for the whole of the quarter will show a contraction.”
“The Bank of England warned in the summer of the risk of a five quarter recession starting in Q4 this year. Even without the debacle created by the government, an earlier start to recession would be a factor worthy of downside pressure on the pound.”
“The removal of unfunded tax cuts will come as a relief, but the line-up of UK fundamentals is still worse than they were ahead of the September mini budget. Over the coming days it will become more obvious whether the PM’s U-turns and the intervention by the BoE have done enough to reassure investors.”
“We haven’t seen enough good news to alter our 3 month forecast of GBP/USD1.06, though this assumes continued broad-based USD strength.”