Mr Trivedi said: “Sterling’s recent rise is of course partly about the broader dollar weakness, but since early November the pound has also strengthened on a trade-weighted basis because it tends to do especially well in an environment of moderating interest rate volatility and buoyant equity prices.
“That has been the backdrop since early November and we expect more of that in the year ahead. That is why we think sterling is one of the currencies that have more room to appreciate as the markets embrace a ‘soft landing’ view.”
Fears about the UK economy have intensified after official figures last week showed that Britain was on the brink of recession.
The economy shrank by 0.1pc between July and September, which means that another quarter of economic decline in the final three months of 2023 would mark the first technical recession since the first lockdown.
However, Mr Trivedi said the forthcoming general election was likely to provide a boost to growth: “It is fair to say that looming elections have the potential to both incentivise additional fiscal support and bring about somewhat reduced trade frictions with the EU, both of which should help support domestic growth, help avoid recessionary risks and boost the pound.”
Mr Juckes added: “You can say: well, we haven’t got much growth, we’ve got big political problems, we’ve got lots of room to cut rates. And my response is: well, everyone knows that.
“And then I get asked: are you worried about the election? Well, what worse could happen politically for sterling than already has over the last 18 months?”
