Positive developments for the Pound, more of this as the year unfolds– MUFG

In the view of economists at MUFG Bank, we may have reached “peak pessimism” for the UK and the Pound. Therefore, the outlook in 2023 is somewhat brighter.

Positive developments emerging

“Much greater political stability this year than last is one factor here and we can very likely assume that PM Sunak will bring greater credibility after the turmoil of 2022. With that comes the probability of greater fiscal credibility too. Furthermore, the drop in natural gas prices, if sustained, will greatly add to fiscal credibility as well.”

“Another consequence of having Rishi Sunak at No. 10 is the prospect of better relations with the EU and with that a possible deal to break the deadlock regarding the Northern Ireland Protocol.” 

“Since the run-in to the Brexit referendum and beyond there have been very few periods of Leveraged and Asset Manager positioning combined being net long GBP. When that does happen, those periods have coincided with GBP appreciation. We are now currently close to turning to net long GBP.”