UNITED KINGDOM, AND GBP
The Pound has a SLIGHTLY WEAK OUTLOOK for the coming weeks
The Pound has a SLIGHTLY WEAK OUTLOOK for the coming weeks
Sterling is looking at a slightly weak path over the next few weeks. The main forces behind that view are the serious political instability that followed Keir Starmer’s sudden resignation as prime minister and an economy that’s clearly losing momentum. Some corners of the labor market still show tightening, but that hasn’t been enough to change the broader picture. Private sector activity is shrinking and inflation is cooling quickly enough to eat into the pound’s interest rate advantage.
The next piece of data that could shift this view arrives on 21 July 2026, when the UK releases its Average Weekly Earnings figures on a year-on-year basis. The previous reading showed total wage growth at 4.1 percent, in line with the upwardly revised estimates. Trading Economics expects that to ease to 3.5 percent by the end of the quarter. A noticeably softer print would give the Bank of England a clear domestic reason to move more dovish on rates, which would likely add to immediate downward pressure on the pound.
A messy combination of political upheaval and ongoing private sector contraction has the British pound under real fundamental pressure as the third quarter begins. Severe Cabinet resignations and the uncertainty around a leadership contest are already raising doubts about whether fiscal discipline can hold. At the same time, the cooling inflation numbers point to a structural change in where monetary policy expectations are headed.
A Fractured Sovereign Horizon Under Private Sector Contraction and Faster Disinflation
The pound is opening the third quarter of 2026 stuck near seven-month lows around $1.32. The macro picture has shifted sharply over the past seven weeks, and the move has left sterling on the back foot. An escalation in the Middle East conflict first laid bare the UK’s heavy exposure to energy shocks, driving 10-year gilt yields to an 18-year high of 5.19 percent in mid-May as markets braced for aggressive tightening from the Bank of England.
That narrative didn’t hold. A string of downbeat indicators has since reversed it. S&P Global’s Flash PMI for June showed private sector activity contracting more deeply, with the composite index falling to a 14-month low of 49.4. The services sector led the drop, sliding to 48.7 as higher costs and softer customer confidence weighed heavily on discretionary spending.
Headline inflation held flat at 2.8 percent in May, missing the 3.0 percent rise that had been expected. Core inflation had already eased to near a five-year low of 2.5 percent in April, a sign that underlying price pressures are fading faster than markets had feared. Together with April’s 0.1 percent month-on-month GDP contraction, these figures have prompted money markets to slash their rate-hike expectations. Investors now price in at most one 25-basis-point increase from the Bank of England by December.
Over the next three weeks the pound is likely to stay under intense pressure. A firmer dollar and narrowing interest rate differentials are eroding the yield cushion that once supported the currency, and the signs of economic slowdown are becoming harder to dismiss.
Gavin Pearson has been studying the currency markets as a retail trader for twenty years.
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