Pensible pence: The outlook for sterling in a fragmenting world

Meaningful recovery is unlikely

The UK has had an eventful year, in politics and in financial markets.

Despite the tumult, on a broad trade-weighted basis, sterling has now recovered the losses associated with the Truss-Kwarteng regime and has even shown recent strength against the US dollar. Relative interest rates have always played an important role in driving day-to-day currency movements, and these will continue to support the value of sterling in the short term. The persistence of high inflation and stronger-than-expected growth means the Bank of England will likely have to keep interest rates higher than current market expectations. Underlying labour market dynamics support t...