Brown Brothers Harriman’s Elias Haddad has highlighted significant downside risks for the British Pound, citing expectations that UK GDP will contract in the second quarter and that political uncertainty could further pressure Sterling. According to Haddad, UK April GDP data, due Thursday, is expected to show a -0.1% month-on-month decline compared to a +0.3% increase in March, and is likely to fall below the Bank of England’s baseline Q2 forecast of +0.1% quarter-on-quarter. Additionally, PMI data suggest UK real GDP could contract by -0.2% quarter-on-quarter in Q2, reinforcing concerns about economic weakness [1].
Despite the soft growth outlook, markets are pricing in further Bank of England rate hikes due to persistent inflation risks. The swaps curve implies 64 basis points of BOE rate hikes over the next twelve months, with rates expected to reach between 4.25% and 4.50%. The first full 25 basis point rate rise is priced in for the September 17 meeting. Haddad forecasts GBP/USD to fall to 1.3100, reflecting a stronger US growth outlook relative to the UK. He notes that while BOE rate hikes in a sluggish growth, high inflation environment are not bullish for GBP, they may help cushion the downside [1].
Political risks are also weighing on the Pound. The upcoming June 18 Makerfield by-election is drawing attention, with recent polls showing Andy Burnham holding a 10-point lead over Reform UK. This could pave the way for Burnham’s return to parliament and a potential leadership challenge to Prime Minister Keir Starmer. Haddad warns that a Burnham-led Labour government would likely result in increased spending and borrowing, which could further undermine UK fiscal credibility [1].
CONCLUSION
The outlook for the British Pound remains negative as weak UK growth data and heightened political risks combine with expectations for further BOE rate hikes. Market participants should be cautious, as both economic and political developments could exacerbate Sterling’s downside in the near term.