THE pound was suffering today on news the UK economy shrank by 0.1% in October. Currency experts said that, with more bad jobs data and a base rate cut likely to follow next week, sterling will remain under pressure, hurting holiday makers heading to Europe over the Christmas break and raising Britain’s energy-buying costs.
One financial expert said: “The outlook for the pound remains challenging into year-end and early next year.” Meanwhile, an entrepreneur said the GDP data and the pound’s subsequent fall was more evidence “Britain’s economic trajectory has become a laughing stock”.
Data out from the Office for National Statistics (ONS) this morning showed a 0.1% contraction in UK GDP in October, coming in worse than the expected 0.1% growth.
The pound’s winning streak against the dollar came to an abrupt end following the release. The sterling to dollar exchange rate dropped from 1.1396 to 1.1380. Against the euro the pound fell from 1.1410 to 1.1390.
With prospects of more bad economic news before the end of the year and expectations of a December interest rate cut by 0.25% practically nailed on – and some suggesting even a 0.5% cut is likely – currency experts said they expected further falls in the pound.
Trips to Europe to become much more expensive
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said: “Much like the UK economy, the pound is on its way down.
“If the Bank of England cuts rates on 18 December, the pound/euro exchange rate is likely to head towards 1.11 interbank as the European Central Bank is very likely to stay put on rates next week.
“The pound/dollar exchange rate is also likely to fall but at a gentler pace, as the Fed will also cut in 2026 but at a slower rate than the Bank of England.”
Redondo is also worried about data incoming ahead of the Bank of England rate decision. He said: “Next week’s employment data is likely to be bad and, sadly, the UK is very likely to welcome in 2026 by going into a technical recession.”
While he said the pound is likely to hold up against the Australian, New Zealand and Canadian Dollars, Redondo added, “trips to Europe are likely to get much more expensive”.
Pound suffers amid fragile UK growth
Prem Raja, Head of Trading Floor at Currencies 4 You said: “Sterling did see a brief lift after the Budget, largely driven by relief rather than any improvement in the underlying outlook, but that support has since faded and the pound is now on the back foot.”
The latest GDP contraction “underlines how fragile UK growth remains”, he said.
Raja added that while rate cuts can be positive for the domestic economy, they tend to reduce the pound’s yield appeal in the short term, particularly if other central banks don’t cut their rate.
“Looking ahead, slow growth and the lagged impact of tighter fiscal policy suggest the outlook for the pound remains challenging into year-end and early next year,” he said.
He added: “For holidaymakers, a softer pound could mean higher costs abroad, making it sensible to plan currency purchases rather than leaving them to the last minute.”
The Labour Party
David Belle, Trader at Fink Money, believes a lot of the bad data has been priced in: “Sterling’s under a little bit of pressure as today’s GDP number almost certainly implies a cut at the next meeting.
“But in my view, the poor growth environment was likely priced in before Labour even came into government, because it’s the Labour Party.
“A weaker pound is likely to be a net negative since we already have expensive energy and buying more abroad is now going to be slightly more expensive, unless some excellent hedging has been undertaken.”
Economic laughing stock
Kundan Bhaduri, Entrepreneur at London-based The Kushman Group, was withering about the government’s management of the economy.
He said: “Britain’s economic trajectory has become a laughing stock. The latest ONS figures confirm what entrepreneurs like myself have known for months. We are sliding downhill with remarkable consistency.
“The prospect of a Bank of England rate cut in December, now practically certain, will further weaken sterling at precisely the moment when imported materials for construction already cost a fortune and when savers who have played by the rules face yet another punishment for their prudence.
“You cannot but help observe the grim irony that we are cutting rates to stimulate an economy that lacks the supply side capacity to respond.
“October’s 0.1% contraction follows a pattern of anaemic growth that makes you wonder whether the Chancellor believes economics functions like Marxist theory rather than actual human incentive.”
Photo by charlesdeluvio on Unsplash
