The pound sterling is once again under pressure from negative outlooks on the UK economy. Yesterday, the British Chamber of Commerce (BCC) stated that the UK economy is likely to enter a recession in the second half of 2022.
According to BCC's analysts, rising inflation and increased taxes will continue to adversely affect the country's economy, which is already on the verge of a recession.
The real estate market is cooling down, and the construction sector is also experiencing a slowdown. Consumer confidence has already fallen to record lows amid the unprecedented cost of living crisis, which is likely to continue until the end of the year.
The ongoing conflict between Russia and Ukraine, as well as constant disruptions of supply chains due to lockdowns in China will likely push inflation up to 10% by the end of the year, BCC predicts.
High inflationary pressure can force the Bank of England to intensify its monetary tightening cycle, adding additional pressure on the UK economy.
This scenario is currently very likely to occur. As a result, the Chambers' analysts revised their economic forecasts for 2023 downwards to 3.5%.
The BCC's bleak outlook matches earlier forecasts by the OECD, which expects the UK to have the worst economic performance out of all G20 countries in 2023.
As a result, the pound sterling slumped once again.
On Wednesday, GBP/USD traded near a 3-week low, which the pair touched this week. GBP/USD decreased by 0.3% and closed at $1.2552 yesterday.
FX strategists do not see the pair rally in the near future. GBP/USD could slump towards its previous low at 1.2334.
The upcoming base rate increase is unlikely to give any support to the pound sterling.
The Bank of England is expected to hike the interest rate to 1.25% from 1% at its policy meeting next week.
However, limited measures are unlikely to bring soaring inflation under control.
