UK: No Longer a Leading Economy

UK: No Longer a Leading Economy

2022-08-17 • Updated

The current situation is terrible, and the future is worse for the United Kingdom. Will the British pound withstand the challenges that await the UK economy, or will it collapse?

The problems of the UK are plentiful: inflation crisis, political instability after the departure of Prime Minister Boris Johnson, trade turmoil due to Brexit and the COVID-19 pandemic, and the unpredictable rise in energy prices due to the Russian invasion of Ukraine. According to Saxo Bank analysts, the negative factors listed above make the British economy look like one in a developing world rather than the sixth largest economy in the world.

Negative factors for the UK economy

1. Britain is on the cusp of a deep recession

The Bank of England has warned that the British economy will enter its most prolonged recession since the 2008 global financial crisis in the fourth quarter of 2022, with GDP dropping 2.1%. Inflation will also peak and exceed 13% in October.

To make it worse, the central bank doesn't anticipate a sharp recovery from the recession and sees GDP growth under 1.75% until mid-2025.

2. Inflation did to the UK what Brexit didn't

The BoE sees UK inflation peak at 13.3% in October, well above the previously expected 11%. Inflation will remain elevated through most of 2023 before falling back towards its 2% target in 2025.

So far, the BoE has raised rates six times in a row in a desperate attempt to control inflation. The latest increase of 50 points was the most significant hike since the bank became independent from the British government in 1997.

3. Political instability haunts Britain

A new British Prime Minister will be announced on September 5, after the resignation of Boris Johnson due to a series of scandals and mass resignations within his government. Conservative candidates Liz Truss and Rishi Sunak are now competing for the position.

4. Surging energy prices due to the war in Ukraine

UK energy prices cap is set to rise another 70% in October, increasing energy bills to more than £3,400 ($4,118) a year.

The rise in oil and gas prices is the primary driver of the inflation crisis in Britain. Gas prices have reached record levels due to supply disruptions caused by Russia's invasion of Ukraine and Russia's cutting off gas supplies to Europe.

5. Trade turmoil  

There’s a risk of a trade war between Britain and the EU over the Northern Ireland Protocol. If the Northern Ireland Protocol bill becomes law in the UK, Europe will fight back. As a result, this will aggravate the negative effects of Brexit.

Sterling saves Britain despite its weakness

The only thing preventing the British economy from fully transforming into an emerging economy is the absence of a currency crisis.

A currency crisis is a type of financial crisis followed by a sharp devaluation of a country's currency. However, the sterling has remained stable through recent major economic events, notably Brexit and the coronavirus pandemic.

GBPUSDWeekly.png

Still, the pound may return to its lowest level against the US dollar since March 2020, dropping below $1.20 soon. Sterling will struggle against the dollar as the economic outlook for the UK grows bleak, while the US has a strong labor market and easing inflation. For now, GBPUSD is consolidating between 1.23 and 119.

LOG IN

 

Similar

Top Three Trade Ideas for December 2023
Top Three Trade Ideas for December 2023

Hey folks, it’s a wrap to yet another month in the 2023 calendar, and I’m guessing you know what that means - time for another episode in the “What To Trade” series. For December, I will be mapping out trade more cautiously as the market volatility often drops

Can JPY Reach New Lows By the End of 2023? 
Can JPY Reach New Lows By the End of 2023? 

Speculation persists regarding the Bank of Japan's potential departure from negative interest rates, yet the USD/JPY maintains its position within a 150–152 range for seven consecutive sessions. Caution is warranted due to a weaker-than-expected Q3 GDP, a slump in imports, and...

Latest news

Will NFP Be Positive for the US Dollar?
Will NFP Be Positive for the US Dollar?

As the US Non-Farm Payrolls (NFP) take center stage, this month's data gains special attention, particularly after the unemployment rate took a concerning turn in the previous month. The US ADP Employment Change reveals a significant decline, with the economy adding 298K new jobs...

Jingle Bulls: How Will The Santa Rally Impact Amazon And Apple?
Jingle Bulls: How Will The Santa Rally Impact Amazon And Apple?

As the year winds down and the festive spirit takes hold, the stock market often presents a curious yet anticipated phenomenon known as the Santa Rally. Within this whirlwind of festive trading, let’s look at how two titans of the tech world, Amazon and Apple, might fare during this unique season.

XAUUSD: Fake breakout or new reality?
XAUUSD: Fake breakout or new reality?

Gold price (XAU/USD) experienced a notable turnaround, gaining fresh bids after a $125 pullback from its recent peak. Federal Reserve Chair Jerome Powell's recent speech suggested a reluctance towards aggressive rate cuts, dampening speculations of immediate policy easing. Market sentiment leans towards the belief that the Fed has concluded its tightening cycle, with a growing...

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera