abrdn: Beware of bullish outlook for the pound

abrdn: Beware of bullish outlook for the pound

September 25, 2024

Outlook Currency UK
Bull stier (Rachel Claire, Pexels)

Matthew Amis, Investment Director at abrdn, said:

'While we’ve seen bullish forecasts on the pound recently, we are less convinced. These forecasts are based on the view that Bank of England will struggle to get base rates materially lower from here. This contrasts with the US Federal Reserve who seem willing to aggressively cut interest rates. So while the pound reaching $1.40 may be good for holidaymakers, it would not be such good news for mortgage holders.

The US Federal Reserve cut 0.50 percentage points last week, by contrast the Bank of England was pushing back on the market view by telling us to expect ‘gradual’ cuts. Our view is that the BoE will cut in November, after which that gradual rate of cuts will accelerate.

Between now and November, Rachel Reeves will deliver her first Budget, this will be fundamental to how the BoE position itself going into 2025. The UK is currently winning its battle with elevated levels of inflation but isn’t out of the woods yet. Reeves needs to be careful not to relight this fire. If she does the result will be interest rates at higher levels for longer and a stronger pound.'

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