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Sterling (GBP) extended its five-day losing streak as investors expect the UK economy to slip into recession due to deteriorating labor market conditions and poor demand prospects. The GBP/USD pair is expected to see more losses as a pause in the Bank of England’s (BOE) tightening rate cycle will lift consumer inflation expectations.
The Bank of England’s unexpected pause in its historically aggressive interest rate cycle not only highlighted policymakers’ concerns about economic instability in the UK but also increased uncertainty about the outlook for inflation. UK energy prices, driven by a global oil rally, are set to see inflation rise again. High inflation and weak labor demand may raise the risk of stagflation in the future.
