The pound fell to over a two-week low on Friday, after recession fears and the prospect of aggressive Fed rate hikes helped to strengthen the safe-haven US dollar. According to the latest survey, British manufacturing lost steam adding to signs that the economy is grinding to a halt.

Fed hawkish outlook

The decline of the pound could continue further in the near-term, analysts have warned. The Federal Reserve’s determination to rate hikes aggressively and curb rising inflation, combined with the widespread risk-off mood, pushed the dollar higher. Speaking at the ECB Forum earlier this week, Fed Chair Jerome Powell referred to more aggressive rate hikes and the Fed’s focus on getting inflation under control.

Recession fears

The Fed's hawkish outlook has sparked market concerns that faster rate hikes and tighter financial conditions would hurt global economic growth. Additionally, a further escalation in tensions between the West and Russia in response to the invasion in Ukraine have added to fears of a possible recession.

Such concerns have hurt risk sentiment and turned investors to safe-haven assets, including the US dollar. The pound was also weighed by expectations that the Bank of England would take a slower approach to raising interest rates and Brexit concerns over the Northern Ireland Protocol.

UK Manufacturing PMI disappoints

Another sign that the economy is slowing is the latest S&P Global / CIPS UK Manufacturing PMI report. UK manufacturing growth lost momentum with the manufacturing PMI down to 52.8 from 54.6 in May. That’s more disappointing than the preliminary “flash” reading of 53.4 in June and is close to the 50-point mark which shows stagnation.

The report showed that business optimism hit a two-year low last month, while activity rose at the slowest pace in two years, with new orders dropping for the first time since January 2021. The consumer goods sector was affected the most as there was less demand from households due to the cost-of-living crisis.

Companies blamed the weaker economic outlook, decreased new export order intakes, a decline in domestic demand, the war in Ukraine, raw material shortages and the slowdown in China.

The ongoing Brexit-related obstacles and weaker growth hurt orders from the EU as new export orders contracted for the fifth month in June.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply also blamed Brexit trade tensions affecting factories: “New order levels fell for the first time since January 2021 and interest particularly from export markets faded away for the fifth month in a row. Supply chain managers reported that ports and paperwork were their undoing in June with Brexit a thorn in the side of manufacturers combined with weaker domestic demand, inefficient performance in supply chains and an overall shaky UK economy.”

In the short term, analysts have noted that the pound will possibly extend its decline against the US dollar, unless there is a noticeable improvement in risk sentiment.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound has weakened and lost previous gains as the US dollar strengthened. Investors remain cautious following recession and Brexit concerns. Fed Chairman Jerome Powell and Governor of the Bank of England Andrew Bailey are expected to speak at the Policy Panel at the ECB Forum on Wednesday. With inflation persisting and remaining high, Governor Bailey would possibly avoid pushing back too much against tightening expectations.

Sterling has not been affected by news of another potential Scottish referendum (19 October 2023), as the possibility of Westminster allowing it is unlikely, but remains to be seen over the coming months.  

Fed and BoE commentary

Markets have high expectations of Federal Reserve chair Jerome Powell delivering a hawkish commentary on interest rates in his speech on Wednesday.

The speech from Bank of England Governor Andrew Bailey will also be in focus. Bailey may discuss how to create price stability in the UK economy. Markets expect a hawkish commentary.

In other news, the Financial Times (FT) reported on Tuesday that the UK is ready to cut off gas supplies to mainland Europe in case its economy faces shortages under an emergency plan. This may create lower oil stockpiles in the Eurozone and could have a negative effect on Brexit.

Recession worries weigh on markets

Recession worries are weighing on markets today, after inflation hit consumer confidence in America. Wall Street fell yesterday, while the S&P 500 lost 2%, and Nasdaq 3%.

The current business conditions are deteriorating each month, while consumers are expecting things to get worse. This pessimistic view highlights the damage that has been done by inflation.

European markets were also lower on Wednesday, with the FTSE 100 down around 55 points, while Germany’s DAX was down 1.1%. Investors are unable to avoid feeling worried about a global slowdown. As Richard Hunter, head of markets at interactive investor said, “With the consumer being central to US economic growth, the recent raft of pessimistic readings has led to some concerns that sentiment could become self-fulfilling as consumers hunker down in the face of higher prices, especially fuel and food. The Federal Reserve will of course be aware of the deteriorating sentiment, but for the moment is showing no signs of abandoning its primary objective of battling inflation head-on.”

Pound concerns

The market sentiment remains weak as there are fears that central banks’ more aggressive attitude to raise interest rates sharply to control inflation would hurt global economic growth. This belief has helped to strengthen the US dollar and pushed the pound lower. The pound was further weighed down by Brexit concerns and expectations that the Bank of England would follow a more gradual approach towards raising interest rates.

On Monday, the UK House of Commons voted in favour of a divisive bill that would unilaterally change part of Britain's Brexit deal agreed in 2020. The move raises the risk of new tensions with the EU as the cost-of-living crisis in the UK and recession fears grow. This will continue to undermine Sterling.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The EUR/GBP pair is a popular pair and belongs to the minor forex pairs group. It is a cross currency pair as it involves two currencies which are valued against a third currency, the US dollar. The EUR/GBP shows how many pounds are needed to buy one euro.

Cross currency pair

When a cross-currency pair is exchanged, two transactions take place. The first one involves trading one currency for its equivalent in US dollars, and the second involves the exchange of US dollars to another currency.

EUR/GBP: limited volatility

The euro-pound cross tends to have very limited volatility on a daily basis, and usually fluctuates when very important events happen in either of the two economies, such as Bank of England or European Central Bank announcements on monetary policy, or political tensions such as the recent conflict in Ukraine.

Key institutions

  • The European Central Bank (ECB)

The European Central Bank (ECB) is the central bank that determines the monetary policy for the Eurozone and ensures price stability, so that the euro’s purchasing power is not affected by inflation. The ECB’s main goal is to keep year-on-year consumer prices from rising too much and has an inflation target of around 2% in the medium term. The central bank is also responsible for the money supply. The European Central Bank operates through the Executive Board, the Governing Council and the General Council. Christine Lagarde is the ECB President since November 2019. She had served as Chairman and Managing Director of the International Monetary Fund between 2011-2019. Her comments as ECB President are very important as they can influence the market and the euro in the near term. If the bank has a hawkish outlook or Lagarde’s comments strike a determined tone to act then this is seen as positive/bullish for the EUR, while a dovish tone is seen as negative/bearish.

  • The Bank of England

The Bank of England is the central bank of the United Kingdom. The BoE is focused on maintaining monetary and financial stability in Britain, but also producing secure banknotes, operating an asset purchase facility and keeping inflation within the target. The bank is accountable to Parliament and the public. Andrew Bailey has been Governor of the Bank of England since March 2020. Prior to becoming the Governor, he worked at the Bank as Executive Director for Banking Services and Chief Cashier, as well as Head of the Bank's Special Resolution Unit. He also had the position of the  Governor's Private Secretary, and acted as the Head of the International Economic Analysis Division in Monetary Analysis.

When does the euro tend to rise?

According to analysts, the euro tends to strengthen when the ECB is optimistic, ECB members sound more hawkish and rates are expected to increase. If the ECB is more optimistic and ready to act than other banks, especially the Fed, then this is also supportive of the euro. When the economy in Europe shows positive signs that is growing and when Lagarde refers to less risks or sounds positive, the euro also rises.

When does the euro tend to weaken?

Any talk about rates falling, drives the euro lower. Similarly, any gloomy news or disappointing tone from the ECB, signs of recession in the Eurozone, or political uncertainty such as Macron losing a majority are also influential and tend to weaken the single currency. The ongoing war between Russia and Ukraine is also another negative for the euro. The euro tends to weaken as inflation rises and growth slows down.

When does the pound tend to strengthen?

When the economic outlook for the UK appears optimistic and rosy then the pound strengthens. Analysts have noted that the emergence of a more stable Conservative PM could also provide support to Sterling. As with other central banks, an optimistic and hawkish Bank of England tends to drive the pound higher. Additionally, the BoE’s intention to push rates higher is usually supportive of the pound.

When does the pound tend to weaken?

Rising energy and food prices and the BoE’s reluctance to act and tackle inflation usually push the pound lower. Additionally, projections for a possible recession and a weak, gloomy outlook also tend to weaken the pound. A slowdown in growth and a slower rate hike cycle can also push the pound lower. The rising cost of living crisis and further risks to the economy are negative for the pound.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound to US dollar currency pair rose early on Monday and reached a one-week high, but later lost its traction. Analysts have warned that gains will be limited due to dovish BoE expectations, Brexit concerns and recession fears.

Brexit and Northern Ireland protocol

The gains for the pound will be limited as markets remain cautious over concerns regarding the post-Brexit trade agreement. UK MPs will vote later on Monday on legislation that would allow them to make unilateral changes to the post-Brexit deal and remove checks on goods entering Northern Ireland from the rest of the UK. The European Union has expressed its disagreement with such a move and said that it would violate international law. British Prime Minister Boris Johnson said on Monday that he intends to turn the legislation, if approved, into law by the end of the year. He has also said that the plan will restore the balance of the Belfast/Good Friday agreement, despite that some Conservative backbenchers are concerned it breaches the rule of law.

Post-Brexit trade deal and recession concerns

The UK government’s attempt to remove parts of the Northern Ireland protocol could add to inflationary pressures that could push the UK into recession. According to academics at the University of Liverpool Management School, the Northern Ireland Protocol Bill will trigger economic policy uncertainty. An article published in the LSE’s Business Review, by professor Costas Milas and lecturers Michael Ellington and Marcin Michalski, argues that rising economic policy uncertainty and higher interest rates will weigh on the economy. They wrote: “Our belief is that by pushing forward with this very bill, Johnson’s government will unnecessarily add to existing economic policy uncertainty. Indeed, how many counties around the world will be willing to sign trade agreements with the UK when Johnson’s government has been accused of breaching international law? This will fuel economic policy uncertainty but also hit the country’s trustworthiness in international markets therefore increasing the interest rate that investors demand to bring, or even keep, their money in the UK.” They added that economic policy uncertainty and higher interest rates will push the country into a recession.”

Recession fears

Rising recession fears and geopolitical tensions are threatening to push the UK economy into recession. According to KPMG’s latest UK Economic Outlook report, released on Monday morning, the cost-of-living crisis could push the economy into “a mild recession” in 2023. The Ukraine war and China lockdowns have added further pressure on supply chains and pushed commodity prices higher.  

KPMG has noted that UK GDP growth will fall to 3.2%, before slowing further to 0.7% in 2023. They said that policy actions to fight inflation and any further issues resulting from geopolitical tensions could bring about another recession. They mentioned aggressive monetary tightening by the US Fed, interruptions of gas supplies from Russia, and additional shock to global wholesale gas and oil prices. In the UK, a potential recession will be the result of a further squeeze on UK households and a sharper decline in household consumption.

A growing number of economists anticipate that America could fall into recession next year, while Europe’s economy has shown signs of a slowdown too. With UK inflation at 40-year highs, consumer confidence has hit record lows, as people are struggling with their finances and have cut spending.

Disappointing UK macroeconomic data, concerns about the UK economy slowing down and diminished expectations of further rate hikes as the Bank of England chooses a more gradual approach towards raising interest rates have acted as headwinds for the pound. The current tensions between the UK and EU about the Northern Ireland protocol have also weighed on the pound to US dollar currency pair.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

he pound could benefit against the euro and the US dollar if Chancellor Rishi Sunak's cost of living package helps give a boost to consumer confidence in the coming weeks, analysts have said.

Speaking on Sky News on Friday morning, a day after announcing the £15bn giveaway for the cost-of-living crisis, Rishi Sunak said that he took a pragmatic approach on taxing the energy sector’s rising earnings. While the government was criticised for taking too long to act, Sunak explained that “It was right to wait until we had some more certainty about what would happen to energy bills in the autumn.” He also explained that electricity producers who avoided the energy profits levy could also face extra tax too, as the government has plans to reform the energy sector.

With energy prices continuing to rise, the government is expected to provide further measures, so the same situation is not repeated next year.

Will the package affect inflation?

The Chancellor explained that the new package will have minimal impact on inflation, much less than 1%, as it is targeted at those in need, while money is being raised through the windfall tax to pay some of the bill.

Sunak also noted that benefits and pensions could also rise ahead of inflation next year, which could push the benefits bill up by £25bn.

Sunak very confident about the outlook for UK economy

Sunak said he was “very confident” about the UK’s economic outlook. He told Radio 4 that the rise in energy prices and the tight labour market have pushed inflation higher. “We are experiencing inflation pressures from both a tight labour market, although that is something to celebrate, but also the energy price shock,” he said.

Deutsche Bank: recession could be avoided

The Chancellor’s £15bn support package should help the UK avoid falling into a recession, analysts at Deutsche Bank said. In a note to clients, Sanjay Raja, Deutsche’s chief UK economist, said that the £400 energy bill rebate and the £650 benefit to the lowest income houses will provide a modest boost to growth. He said the effects of the support will only come later in the year, which will leave households to deal with the real income shock for several more months without much support.

PM Boris Johnson is also optimistic that the UK can avoid falling into a recession, despite the difficult times that lie ahead. “We’re going to have a difficult period, and we’ve got to be absolutely clear with people it’s going to be difficult, and the government cannot solve every problem. We can’t cover everybody’s extra cost. But what we can do is make sure that we deal with the underlying causes of inflation, but also keep our economy strong and open to investment.”

As some analysts have noted, the Chancellor’s support package may have minimal impact in the near-term for the pound, but as soon as more positive economic data is released especially later next month, the then the pound could strengthen.

 

 

 

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

Analysts have warned that the pound is expected to underperform over the summer against major currencies as the economy slows down, recession fears and uncertainty continue, and the Bank of England pauses its interest rate hike cycle.

Global economic fears

Global leaders at the World Economic Forum in Davos have voiced similar concerns over a possible global recession and the escalation of the war in Ukraine. The war in Ukraine has exacerbated global economic uncertainty and has created “a major setback” to the global economy, as Gita Gopinath, first deputy managing director of the International Monetary Fund said.

High inflation is now a major concern for leading central banks who are forced to raise interest rates, while China’s economy is slowing due to the Covid-19 lockdowns. Multiple global shocks are hitting the world as major economies are starting to recover. The cost-of-living crisis is also a major concern along with the food crisis.

George Soros and WW3

Last night, veteran philanthropist George Soros has warned that Russia’s invasion of Ukraine could be the “beginning of the third world war” that could herald the end of civilisation. In his attack on Vladimir Putin and China’s Xi Jinping at the World Economic Forum in Davos, Soros explained that closed societies and autocratic regimes were gaining traction and that the global economy is heading for a depression. Soros said: “The invasion may have been the beginning of the third world war and our civilisation may not survive it. The invasion of Ukraine didn’t come out of the blue. The world has been increasingly engaged in a struggle between two systems of governance that are diametrically opposed to each other: open society and closed society.”

The 91-year-old former hedge fund owner who is hated by the hard right in the US explained that “repressive regimes are now in the ascendant and open societies are under siege. Today China and Russia present the greatest threat to open society.”

He praised Europe for responding to the war in Ukraine “with greater speed, unity and vigour than ever before in its history.” He added: “But Europe’s dependence on Russian fossil fuels remains excessive, due largely to the mercantilist policies pursued by former chancellor Angela Merkel. She had made special deals with Russia for the supply of gas and made China Germany’s largest export market. That made Germany the best performing economy in Europe but now there is a heavy price to pay. Germany’s economy needs to be reoriented. And that will take a long time.”

Kissinger’s warning

The 98-year-old former secretary of state Henry Kissinger has also expressed his opinion about Putin in Davos. However, for him Ukraine needs to cede territory to make peace with Russia. Speaking via video link to the World Economic Forum in Davos, on Monday, Kissinger said that by alienating Putin, Europe would face dire long-term consequences. He said: “Negotiations need to begin in the next two months before it creates upheavals and tensions that will not be easily overcome,” and that “Pursuing the war beyond that point would not be about the freedom of Ukraine, but a new war against Russia itself.” Kissinger was soon criticised for his statements as many said that his suggestions were unrealistic.

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound fell after the release of disappointing UK preliminary Manufacturing and Services PMIs. The UK Manufacturing PMI dropped to 54.6 in May, while the Services PMI came at 51.8 in May. As a result, the pound to US dollar exchange rate dropped sharply.

PMIs

According to the S&P Global / CIPS PMI survey, growth in the UK private sector dropped to its weakest since the winter of 2021 lockdown, as the cost-of-living crisis hit customer demand in May. The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped to 54.6 in May versus 55.1 that was expected and 55.8 – April’s final reading. The preliminary UK Services Business Activity Index for May tumbled to 15-month lows, at 51.8 versus April’s final reading of 58.9 and 57.3 that was expected.

According to the survey, business expectations also fell to the lowest for two years in May due to the weakening global economic outlook and gloomy projections for consumer spending. The service sector showed the sharpest drop in business optimism.

Chris Williamson, Chief Business Economist at S&P Global, commented on the survey

“The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies' costs hit yet another all-time high. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

He said that rising prices, supply chain issues, labour shortages and increasingly gloomy prospects have added to rising concerns with companies reporting price resistance from customers. There are some signs that the rate of inflation could soon reach a peak, while a slowing in demand could help pull prices down in coming months. He highlighted that “the latest data indicate a heightened risk of the economy falling into recession as the Bank of England fights to control inflation. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

Inflation, recession, and Brexit concerns to influence the pound

JP Morgan analysts fear that the pound will remain “trapped in a stagflationary vortex” as inflation rises and growth slows down to "a borderline recession". Because double-digit inflation and zero growth are toxic to the pound, they said that they were cutting their GBP forecasts once again this month.

Their forecasts have also been cut as they believe that any potential deterioration in the trade relations between the EU and the UK as a result of possible changes to the Northern Ireland Protocol by the UK, will also add to a decline in the UK’s trade imbalances this year. They highlighted that the recent rallies by both the euro and the pound against the US dollar could be short-lived.

Economists at MUFG bank have also warned that legislation on the Brexit protocol will escalate in the coming weeks and any unilateral action by the UK could usher us into a new period of heightened uncertainty that will start to weigh on the pound.

 

 

With the current volatility and concerns about an economic slowdown, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound has recovered against the US dollar and is higher against the euro. The recovery is due to a weakness in the US dollar, after a positive shift in risk sentiment, with news of Shanghai reopening, which have weakened the safe-haven US dollar. Analysts have noted that any further boost to the GBP/USD might be unlikely, as US Treasury yields continue to rise.

Additionally, the difference between the Fed and BoE’s monetary policy will possibly keep the pound under pressure, at least in the near term.

In the coming week, traders will turn their focus on UK inflation data, while headlines regarding market sentiment and Brexit will also provide direction.

Gas supplies to Europe

The euro has fallen against the pound and the US dollar as rising gas prices could push the Eurozone economy into recession later in 2022 and deter the European Central Bank from raising interest rates. The currency market is expecting less interest rates now as stagflation fears have risen. Russia’s squeeze in gas supplies to Europe and a surge in European gas prices have added to concerns. Natural gas prices surged in Europe on Thursday after it was revealed that Russia was sanctioning energy companies. Russia listed 31 companies which are banned from conducting transactions and entering Russian ports. Gas transit to Europe via Ukraine has also been restricted.

The gas supply disruptions through Ukraine and then to Germany have pushed growth expectations lower.

With lower rate hike expectations, the euro has weakened and any boost it may get from a more positive ECB rhetoric could be short-lived. The pound rose as a result of the euro’s weakness.  

The realisation that inflation could lead to recession, and the fall of the euro follows the Bank of England’s recession warning and the fall of the pound last week.

Eurozone recession risks

Concerns about the Eurozone economy have been voiced by various CEOs who fear the worst. Bosch CEO Stefan Hartung said: “For sure, we see a big recession in the making, but that’s exactly what we see — it’s in the making. There is still an overhanging demand because of the Covid crisis we just are about to leave. It’s still there and you see it heavily hitting us in China, but you see that in a lot of areas in the world, the demand of consumers has already even been increased in some areas.”

Eurozone investor morale has dropped in Europe to its lowest level since June 2020 following the war in Ukraine. According to the latest Sentix index of investor confidence, the index fell to a near two-year low in May (-22.6). Investors were pessimistic about the current economic situation, and the economic outlook with recession becoming visible in the euro area.

Further euro weakness

Analysts warn that the euro could fall further if Russia restricts gas supplies which is something that is increasingly possible as the Russian army has failed to make any progress in eastern Ukraine.

This could lead Russia to attack the West by limiting European gas supplies which could affect Eurozone economy and the growth outlook, while hurting market sentiment towards the euro. The war in Ukraine has tied the euro to energy supplies. For most economists, the possibility of a recession in the Eurozone has risen and the euro will be sensitive to news and developments concerning the region’s growth and potential risks.

 

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound has fallen to a new two-year low against the US dollar, and a seven-month low against the euro, as uncertainty about the UK economy and recession concerns have increased.

UK GDP shrinks in March as consumers cut spending

According to the latest data from the Office for National Statistics (ONS) released on Thursday, Britain’s economy contracted in March as spending in shops dropped sharply due to the rising cost of living, including higher energy bills. Activity fell by 0.1% with spending in shops experiencing a significant drop.

The Chancellor, Rishi Sunak, said: “The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times. Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.”

The wholesale and retail trade sectors suffered the most, while the car sector also experienced falling sales. The fastest growth was seen in human health and social work activities.

Business Investment

UK business investment fell by 0.5% in the first quarter of 2022, as companies saved capital instead of spending spending on new projects.

Martin Beck, chief economic advisor to the EY ITEM Club, said: “With the consumers feeling the pinch and the Government tightening its purse strings, the onus is on companies to step up and invest more before the super deduction ends next year. But with business investment having fallen again in Q1 2022, the year has got off to a disappointing start in that respect.”

NIESR principal economist Rory Macqueen underlined the decline in consumer confidence which resulted in the drop in retail and wholesale. As he noted, “Falling business investment in the first estimate for the first quarter is a concern: with the government’s tax ‘super-deduction’ expiring in under a year we still still see little sign of a recovery from the Covid shock.”

Pound outlook

Economists have warned that the pound will remain weak, and today’s report adds to concerns about the economic outlook. With economic growth slowing, inflation continuing to rise, and Brexit looming in the background, the pound is expected to remain under pressure.

The UK’s political uncertainty and rising inflation will keep the pound vulnerable. Gerard Lyons, chief economic strategist at Netwealth warned that “At this rate a self-made sterling crisis could be next. Having wrongly eased aggressively when growth was recovering and inflation was rising last year, the Bank now continues to hike as it forecasts a sharp slowdown and likely recession ahead.”

A lower pound might attract tourists to the UK and make UK exports more competitive. On the other hand, any boost to the pound could prove be temporary.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The pound has continued to trade within a stable range despite growing concerns about Brexit and the UK economic outlook.

Brexit

The Northern Ireland protocol row has returned with the UK threatening laws to disapply parts of the deal and the EU threatening to revoke the trade deal with the UK. The current threats come at the time where negotiations with the EU over the protocol are about to restart.

Late on Tuesday, the UK foreign secretary, Liz Truss, issued a lengthy tirade against the EU criticising proposals it made last October about checks on goods leaving Great Britain and entering Northern Ireland. She said the EU’s proposals will make current trading arrangements worse and lead to consumer products disappearing from shelves, while adding more pressure on businesses.

As she said, the UK “will not shy away from taking action to stabilise the situation in Northern Ireland if solutions cannot be found.”

The UK is expected to reveal legislation next week to disapply some of the protocol. The EU Brexit chief Maroš Šefčovič, issued a statement on Tuesday warning that a renegotiation of the protocol was not an option as it was a “cornerstone” of the wider withdrawal agreement. If the UK proceeds to disapply the protocol completely, the EU has promised to take action including limited sanctions on British goods such as Scottish salmon and whisky or suspension of the entire trade and cooperation deal.

Recession risk

Last week the Bank of England forecast Britain’s economy would shrink and enter a recession in 2023. Now, there is a more dire warning from the UK’s National Institute of Economic and Social Research (NIESR) institute, which has forecast that gross domestic product will fall by 0.2% in the third quarter and 0.4% in the last three months of the year, marking two consecutive quarters of contraction. “Times are difficult for the UK economy,” said NIESR’s deputy director for macroeconomics, Stephen Millard.

EY Item Club has also forecast that the UK is under threat from a potential recession. They said that UK GDP is expected to grow 4.1% in 2022, 1.9% in 2023 and 2.2% in 2024, but there is significant risk of recession with households set to experience the biggest fall in real wages since 1977.

While the EY ITEM Club’s forecast does not see the UK economy entering a recession, it has warned that there is a potential that this could happen later in 2022 if consumer spending does not meet expectations, or if October’s energy price cap review results in higher bills. Consumer spending is expected to rise 4.9% in 2022, down from the 5.1% and 5.6% expected in March and February.

While consumer spending may benefit from households spending the almost-£180bn worth of savings (8% of GDP) built up during the pandemic, there is a significant risk that consumers may cut spending as their finances come under pressure. With the rising cost of living expected to affect households at various degrees, it is hard to see how the more vulnerable households will manage with the rising costs of energy bills and higher inflation.

The risk of a recession along with the negative Brexit-related headlines, will add pressure on the British pound and limit any gains for the GBP/USD pair.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.