GBP: Inflation risks and weak growth outlook – HSBC
HSBC expects the Pound to be weighed down by weak UK labour demand and sluggish private sector momentum, especially versus a more resilient US economy.
HSBC anticipates the British Pound to be undermined by insufficient demand in the UK labor force and sluggish private sector growth, especially in comparison to a stronger US economy. Although markets have factored in substantial interest rate hikes by the Bank of England, the rising cost of energy adds complexity to monetary policy as inflation concerns intensify while economic growth remains uncertain.
The combination of weak UK labor demand and sluggish private sector momentum could negatively impact the GBP in the short term, especially given the more resilient performance of the US economy. While markets are already pricing around a 100 basis point tightening from the Bank of England by July 2027, higher energy prices create a challenging policy scenario: inflation risks are on the rise even as growth prospects face a tough outlook.
The period leading up to the budget announcement on October 28th may exacerbate the situation, with elevated gilt yields and tough fiscal decisions confronting the new Chancellor.
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