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Sterling (GBP) remains subdued as market sentiment turns cautious and investors continue to sell risk assets. The GBP/USD currency pair is likely to remain choppy as the risk of a UK recession increases amid a fragile economic outlook. The U.K. Manufacturing and Services Purchasing Managers’ Index, which measures the health of the manufacturing and services sectors, has fallen into contraction territory, while strong labor demand appears to be fading.
The UK economy is losing steam amid uncertainty over the outlook for interest rates ahead of the election. British Prime Minister Sunak promised to halve inflation to around 5.3% by the end of the year, but Bank of England policymakers announced a pause in interest rate increases, indicating that the Prime Minister may not be able to fulfill his promise. Investors will be watching next week’s final readings of the S&P Global Manufacturing and Services Purchasing Managers’ Index for further action.
