Oct 24, 2022 6:38 AM ET
On October 20, Liz Truss resigned as Prime Minister of the United Kingdom, making her the shortest-serving British Prime Minister in history.
Despite the policy changes, the pound continues to have structural problems. Even as structural concerns become less dominant, cyclical forces may continue to weigh on the pound, in the view of HSBC economists.
The pound is expected to remain under pressure.
The UK's debt-to-GDP ratio is set to rise, and the net supply of gilts could exceed £250 billion, a new record. The UK's fiscal deficit could be around 6% of GDP.
It is also worth noting that the UK's basic balance (i.e., current account balance + net foreign direct investment) has moved from a 2% surplus to an 8% deficit in the last two years. All of these structural challenges are likely to continue to pull GBP/USD lower. "
Sterling could suffer from a tone from the Bank of England that suggests the economic outlook may be even weaker than expected and that the market is too hawkish on rate hikes.
Even as market focus shifts from structural concerns to cyclical forces, the combination of weak growth and high inflation facing the UK is likely to see GBP struggle.