GBP: Inflation risks and weak growth outlook – HSBC

HSBC expects the Pound to be weighed down by weak UK labour demand and sluggish private sector momentum, especially versus a more resilient US economy. Markets already price significant Bank of England tightening, but higher energy prices complicate policy as inflation risks rise while growth momentum remains fragile, with fiscal challenges and elevated gilt yields adding further pressure on GBP/USD.

GBP challenged by growth and inflation

"Weak UK labour demand and sluggish private sector momentum could weigh on the GBP in the near term, particularly as the US economy is looking more resilient."

"Markets are already pricing around 100bp of tightening from the Bank of England by July 2027, but higher energy prices create a difficult policy mix: inflation risks arerising even as growth momentum faces a challenging outlook."

"The run-up to the budget update on 28 October may add further pressure, with elevated gilt yields and difficult fiscal choices ahead for the new Chancellor."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)