The British pound (GBP) is showing signs of resilience. It may be a bit late in the day to claim that the pound is back on its feet, but with continued industrial action in the UK, it seems likely that the pound will fall into the abyss once more.
While the UK’s economy continues to chug along, the pound remains weak compared to its longtime counterpart, the US dollar. In fact, the pound has lost 15% of its value against the greenback so far this year. According to research from Rabobank, the buck is still the best bet for those who want to invest in a basket of currencies.
On the other hand, the British pound’s relative strength against its American counterpart is a tad shaky, especially with the ongoing industrial action in the UK. There are currently 19 days of planned postal strikes which are set to wreak havoc during the festive period. Meanwhile, the Royal Mail has been taking hits in the form of a strike which has disrupted hospitality businesses during the busy holiday season.
A recent report from the Office for National Statistics (ONS) outlined a number of noteworthy achievements. For instance, the UK services sector contributed more to GDP in October than the previous month. This is one of the reasons the UK was able to beat its main competitors by 0.6%.
The government has announced a “growth, growth, growth” plan – an ambitious program to boost the economy, a la Obama’s plan to jumpstart the economy – which is expected to include plans to overhaul the tax system and increase investment. These measures are aimed at reviving the moribund economy after a tough year.
However, the big picture is more nuanced than the latest data suggests. Earlier this year, the Bank of England (BoE) unveiled its most aggressive interest rate hike in more than a decade. Since February, the Bank has raised the base rate by 75 basis points to 3%. Despite this, inflation has been rising at an unprecedented pace and consumer spending has been stalled. As a result, the Bounce Back Fund, a new initiative designed to help the economy recover, is now being launched.
The biggest challenge facing the Bank of England (BoE) is balancing its need to keep the economy in check with its need to slash inflation. One of the most significant measures to be taken is the reduction of the rate on the top rate of tax paid by high earners. After the tax reduction, it is expected that the government will borrow an additional PS43bn to bolster the economy. But in light of the recent surge in debt, investors are wary of the future.
One of the more important things to know is that the UK economy is a lot larger than you might think. This is particularly true when compared to the rest of the G-7 countries. Although the government has a plan to achieve pre-pandemic GDP by 2022, it may not be enough to stave off the recession.