- UK home prices plunge 4.6% in the year up to August, worst y/y drop since 2009
- UK businesses expected to deliver smallest price rise since February 2022
- GBP underperforms as BOE rate hike expectations shrink; implied rate peak at 5.699% vs 5.671% on Sept 1st
GBP/USD (a daily chart of which is show) has steadily weakened this month, now falling below the 1.25000 level. This occurs within the context of a strong accelerated downtrend extending originally from the 1.3140 area highs in July. The UK inflation outlook is for pricing pressures to continue to ease as business prepare to raise prices at the slowest pace since 2021. The latest report from the BOE’s Decision Maker Panel (DMP) survey showed one-year ahead inflation expectations improved from 5.4% in July to 4.8% in August. The three-year outlook improved a tick to 3.2%.
With BOE rate hike expectations starting to come down, the focus is shifting to how weak is the economy. Britain’s residential property market woes are not getting any better as a couple of the top lenders signal prices are falling at the worst pace since 2009. Questions are growing about how strong the consumer is and if the debt situation will significantly worsen.
Inflation is still too high and that seems to have markets convinced that the BOE will deliver one more rate hike. Divide is brewing amongst policymakers, but it should easily be justified to deliver one more rate hike in this cycle. If the softer trend emerges with inflation, the BOE might be done hiking and that could pave the way for pound weakness towards the 1.2350 region. Major support resides at the 1.2000 and 1.2090 zone.
