12m ago
17.10 GMT
Pound trapped in 'doom loop'
The pound is on track for its worst day against the US
dollar since the day of the mini-budget.
Sterling is
still down over 2 cents against the greenback tonight, after the Bank of
England warned the UK faces a protracted recession, and hinted rates will peak
lower than expected.
Charles
Hepworth, investment director at GAM Investments, says there is a big contrast
between the BoE and the Federal Reserve – which warned last night that markets
were underpricing future US interest rate hikes.
This is
entirely down to the fact that the UK economy is in a much weaker position than
the US and the Bank believes we are already in a recession which will see GDP
fall for a record-breaking eight quarters into the middle of 2024.
“With a
less aggressive central bank, the release valve in sterling is where the market
action is and it is trading a lot lower against the dollar (down close to 2% on
the day).
The Bank is
stuck in a hole: currency weakness pushes up imported inflation, but hiking
aggressively into the teeth of a recession is never normal policy, yet they
are. It’s difficult to see how this currency doom loop can be escaped.”
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