Pound rises as UK economic sentiment improves
The economic outlook for the UK at the start of 2023 made for grim reading and encouraged the sterling sell-off that began just before Christmas. Last summer, the Bank of England released economic forecasts that suggested the UK was going to face a long a deep recession, entering negative growth towards the end of 2022 and not recovering until 2024.
Since then we have seen the fall of ‘trussonomics’ and new leadership at the very top of government. Jeremy Hunt as Chancellor of the Exchequer stated from the outset that his plans for the UK would be fiscally responsible which helped aid calm the turmoil in the financial markets caused by Truss and Kwarteng.
Since the turn of the year economic data from the UK has been less negative than the Banks suggestion. Most recently, yesterday where services PMI data was higher than expected at 52.9. Signaling a clear expansion for the UK services sector and providing a boost to sterling exchange rates. Cable (GBPUSD) is trading within range of the 1-year high and breached the 1.25 handle on Tuesday. GBPEUR is within range of the 3-month high, comfortably above 1.14 at the time of writing.
Sterling’s position has certainly improved and the outlook is more positive. However, the economic data does not suggest that the economy is going to fly in 2023. Projections from the OBR still show the UK economy contracting by 0.2% although a recession will be avoided.
Markets will be closed across much of the world tomorrow and Monday for the Easter weekend although we could still see volatility following tomorrows Nonfarm payroll data from the US. Tuesday morning will also be one to watch with the release or Eurozone retail sales figures.
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