“There was a big re-rating of growth expectations around Europe, and that impacted the UK,” Pesole said. “There was a lot of pessimism being priced into the pound,” said Francesco Pesole, a currency strategist at ING.īut the sharp pullback in energy prices and China’s reopening have provided some relief about the economic outlook since the start of the year. The International Monetary Fund predicted in January that the UK economy would contract by 0.6% this year, while all other advanced economies would grow, if only slightly. The pound plunged close to $1.03 in September 2022 after the Truss government unveiled plans to boost borrowing while slashing taxes, unleashing panic in financial markets that fueled fears of a recession in the United Kingdom. Inflation in the United Kingdom also jumped to an annual rate of 10.4% in February, underscoring the need for the Bank of England to maintain its tough approach. Rising rates can boost the domestic currency because they help attract foreign investors searching for higher returns. This resilience is bolstering expectations the Bank of England will maintain aggressive interest rate hikes despite concerns about the health of the global banking sector.
Gross domestic product growth in January has been estimated at 0.3% after dropping 0.5% in December. Activity is now thought to have expanded 0.1% in the final three months of last year, up from a previous estimate of no growth at all. The UK currency has been boosted by indications the country’s economy is holding up better than expected.
The pound, which has advanced about 3.3% versus the greenback since the start of 2023, is the best-performing currency among developed economies this year. Sterling hit its highest level against the US dollar in 10 months on Tuesday, topping $1.25 for the first time since June 2022. The British pound crashed to a record low last fall as investors rebelled against budget plans by former Prime Minister Liz Truss.
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