The British pound may remain weak as the UK election is ahead of schedule

British Prime Minister Jensen's successor has limited options to deal with a vicious cycle of sterling devaluation, spiraling living costs and collapsing consumer confidence. Sterling has fallen 13% against the euro since 2016, and the UK has the second-highest trade deficit after New Zealand at 4% of GDP and the highest expected inflation rate. Prime Minister candidates like former Chancellor of the Exchequer Sunak, Health Secretary Javid and Foreign Secretary Truss may struggle to find a quick solution to the economic impact of family poverty and worker strikes.

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With broader political risks escalating, the outlook for the UK general election itself is unmistakably negative for sterling; an early general election and more fiscal easing than previously expected add to the Bank of England's more aggressive approach in the second half of 2023 Possibility of action and risk of rising long-term Treasury yields.

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The British political situation was unstable after Jensen's resignation. The leader of the Labour Party said that the United Kingdom needs a new general election. It is reported that the British general election may be brought forward. On Monday, the pound fell 1.3% against the dollar to 1.1866, a new low since March 2020, and finally closed down 1.2 %, at 1.1888. Political turmoil combined with grim domestic economic growth prospects and downside risks arising from a possible dovish re-pricing of Bank of England interest rate expectations are all adversely affecting the pound, whose downward path seems unlikely to end.

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As the process of electing a new Conservative Party leader (and future prime minister) in the UK begins, many candidates have joined the race. However, the agency expects sterling to be only marginally affected by the Conservative Party leadership race, while downside risks arising from a challenging external environment, a grim domestic outlook and a possible dovish repricing of BoE rate expectations appear to remain in place. more important.

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British Conservative Party leader candidate Sharps: Supporting Sunak's election as prime minister, the promise of more spending and lower taxes is not credible. The question is when to cut taxes, not whether to cut taxes. My first promise is to reduce the fuel tax A reduction of 10p per litre will introduce an energy recovery plan to ensure the UK has a reliable supply of electricity and I think our target for NATO defence spending is a floor, not a ceiling.

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According to the survey, 13 economists expect a 45% chance of a recession in the UK next year, which is three times higher than the probability in the survey in early 2022. Economists are growing more pessimistic amid soaring inflation, even as official expectations now suggest Britain may be able to avoid two consecutive quarters of contraction.

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British Prime Minister Jensen's successor could face a formidable challenge. At present, candidates for prime minister are discussing tax cuts and government spending cuts, but the highest inflation in 40 years and the high cost of living are the root of the British economy's weakness. Economists have been downgrading their median forecast for UK economic growth every month this year, with growth forecasts dropping to 3.4% in 2022 and 0.7% in 2023, according to a Bloomberg survey.