British Pound On The Rebound But For How Long?

April 16, 2024 10:13 am

The UK economy has gone through a rough patch in the last months, hit by high inflation figures, high interest rates and anaemic growth. Despite difficulties, according to Forbes, the UK has the sixth largest economy in the world following the much larger India. This year is expected to be quite challenging for the British economy and the UK pound as it will likely try to return to the path of growth and gain ground in the competition against other major economies.

By reading this article, you will learn more details about the economic conditions in the UK and what economists forecast regarding the economy and the UK pound.

Table of Contents

UK Economy Grows Again?

The latest report by the Office for National Statistics (ONS) showed that the UK economy returned to growth, registering a 0.2% expansion in January 2024. Analysts attributed the surge to a retail sales jump after December’s slump. It should be noted that the UK entered a technical recession last year as two consecutive negative growth quarters (Q3 and Q4 2023) were recorded.

Although the country’s government suggests that the economy has made a U-turn, ONS economists warned that reading too much in one month’s data may be a wrong approach. GDP growth in the three months to January 2024 was still 0.2% less than in same quarter last year, while GDP per capita remains below pre-pandemic levels.

The National Institute of Economic And Social Research (NIESR) forecast GDP to grow by 0.3 per cent in the first quarter of 2024.

“ONS data indicate that monthly GDP grew by 0.2 per cent in January 2024, following a fall of 0.1 per cent in December 2023. While this seems positive, GDP fell by 0.1 per cent in the three months to January, in line with our forecast last month. In broader terms, UK economic growth has been near-zero since 2022 and GDP per head remains lower than pre-Covid. To escape the low-growth trap, structural changes are needed, such as an increase in public investment, particularly in infrastructure, education and health – which would also support growth in business investment,” the NIESR report notes.

What Do Analysts Forecast For The British Pound

While some currency strategists underscore the pound’s current strength, there are some questions over Sterling’s ability to sustain its upward trajectory.

Commerzbank: Will the British Pound Strength Last?

Commerzbank’s analysts note that the British pound should be treated with caution although it has strengthened in the recent weeks when compared to other major currencies.

In their report, the German bank’s economists said: “The only question is how long the Pound’s strength will last. At the moment it is still a rather shaky strength. Today’s (GDP) data should therefore continue to confirm the recent picture, i.e. the unemployment rate should not rise too much and wage growth should not slow down too much. Only then should the BoE continue to focus on future rate cuts. And only then will further Pound strength be justified. Until then, however, I would also be cautious about the GBP at present.”

Depicted: Admirals MetaTrader 5 – GBP/USD Daily Chart. 
Date Range: September 11th 2023 – March 19th 2024. Date Captured: March 19th 2024. Past Performance is not an indicator of future results. 

HSBC: British Pound To Face Downward Pressure In Months Ahead

HSBC currency analysts suggest that the UK pound could face challenges in the months to come although it is the second best performing G10 currency so far in 2024. Commenting on Sterling’s outlook, they note that “we think that the main driver of the likely weakness for the GBP is the slow but clear pivot by the BoE towards a more dovish stance. The UK still faces a challenging inflation-growth mix, making it hard for the BoE to remain a more hawkish outlier in the G10 space. As the BoE catches up on the dovish side with other central banks, the GBP could face more downward pressure in the months ahead.”

Depicted: Admirals MetaTrader 5 – GBP/USD Monthly Chart.
Date Range: January 1st 2013 – March 19th 2024. Date Captured: March 19th 2024. Past Performance is not an indicator of future results.

Trading The British Pound With Admirals

Opening a trading account with Admirals enables you to trade the British pound against the US dollar (GBP/USD), the euro (EUR/GBP), the Australian dollar (GBP/AUD), the New Zealand dollar (GBP/NZD) and other currencies from Europe, America, Asia and Africa.

Before starting to trade, beginner traders should spend some time learning the trading fundamentals that could help them build a comprehensive trading plan. A good idea would be to delve into educational materials such as e-books, articles and how-to guides as well as watching webinars to get a more thorough understanding of how trading functions. These types of materials can be found online so there is no reason not to take advantage of them.

Beginner traders should also learn how to use risk management tools such as the stop loss order or the take profit order. Such risk management tools mitigate risks when trading, especially when not so experienced traders are involved. As markets can move against any trading plan quite quickly, risk management tools could be a good asset for beginner traders.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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