Different UK economic growth figures have surpassed spectators’ expectations, but the Great British Pound (GBP) has found some comfort. The pound will likely experience some buying and selling pressure since it is probable that there will be a reduction or stagnation of interest rates in 2024.
In the third quarter of 2023, the UK Gross Domestic Product (GDP) was flat at 0% quarter-on-quarter, which was better than expected. But even the increasing GDP might not be able to save the sinking pound. The pound is failing to benefit from the rising GDP, as the currency was initially predicted to increase by 0.5%, but now the expectations for 2024 are set at 0.0%.
2024 Great British Pound Forecast
Since August 2023, the pound has come under negative pressure since the markets have reduced expectations for UK interest rates. Previously, economists expected the interest rates to increase to 5.50–5.75%, but the current 5.2% rate was retained by the Bank of England (BOE). It has also increased the chances for rate cuts in 2024.
The near-term outlook for the UK market looks gloomy, so analysts expect the UK economy will continue to experience stagnant growth into 2024. It’s essential to know the details of the GBP and use tools like TradingView to make informed decisions.
Although headline inflation is expected to remain high, it might fall back to the 2% target in the second half of 2024. The International Nederlanden Group (ING), a Dutch bank, forecasts that the GBP/USD will reverse the downtrend and increase to 1.29 by the end of 2024. However, other institutional forecasts are bearish. They predict the pound will go below 1.20 against the dollar in 2024.
The price movements in different GBP pairs suggest that the pound started to decline towards the end of August 2023, as the UK data highlighted weaknesses in the currency. Due to this, investors gradually reduced their expectations for the interest rate hike.
Before the Bank of England’s meeting on 21 September 2023, market predictions were reduced from three to one basis point rate hikes. The BoE retained the 5.2% rates in the meeting, causing the GBP to decline quickly against other currencies.
The growth forecast for the fourth quarter of 2023 is expected to be 0.3–0.5%, from 0-0.2%. However, it will likely decrease in 2024, from 0.7–0.8% to 0.4–0.5%. Different factors can affect the pound, including the high inflation rate, interest rates, and the economic growth of the UK.
Pound-to-Dollar Fundamental Forecast
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Regarding the fundamental forecast for the dollar, two rate cuts are expected in 2024 instead of the four previously expected. The first cut is expected in the second half of 2024. The pound forecast for the first three to six months of 2024 is bearish, so any short-term growth in the GBP/USD should not be seen as a reversal, especially if it isn’t backed up by a strong UK market.
The pound-to-dollar forecast for 2024 features a closing price of 1.18, and in the first quarter of 2024, some institutions predict a price of 1.17. The 2024 January, February, March, and April estimates are 1.169, 1.155, 1.148 and 1.175 respectively.
Pound-to-Euro Fundamental Forecast
In 2024, the GBP/EUR might struggle to make meaningful gains. The eurozone economy already shows different weaknesses, especially with the delay between interest rate increases and their impact on the real economy. So, the projected interest rate cuts would put pressure on the euro and eventually affect the currency.
If the GBP has a higher interest rate, and the UK’s economic growth catches up with the EU’s, this would eventually lead to a stronger pound. Currently, the UK economy remains stagnant. The ING predicts a high of 0.90 for the pound-to-euro exchange rate in 2024. The exchange rate would also reach a low of 1.11. Some institutions have also predicted a weakening of the exchange rate in 2024.
Furthermore, the markets are more focused on the prospect of the Bank of England cutting interest rates or retaining the current rate in 2024. This would cause the GBP to reduce in value eventually.
Pound-to-Yen Fundamental Forecast
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As for the pound-to-yen, the Japanese market rates are expected to increase above their current level until the Bank of Japan normalises its policy; this would maintain a widespread relationship with the UK bonds. The pound-to-yen exchange rate in 2024 is expected to remain neutral.
Forecasts predict that the GBP/JPY should be priced at 183.018 at the end of the fourth quarter of 2023 and 184.155 at the beginning of 2024. Attempts to break higher have failed for this exchange rate, so the GBP/JPY has been moving slowly.
The Pound’s future
The pound’s decline despite the better-than-expected GDP numbers might worry UK investors. However, it also shows that the market expects surprises in the UK data before investing in the GBP. The pound’s rate in 2024 might be affected by low interest rates, economic growth, and the inflation differential. With the financial situation in the UK improving, the pound might have hope.
