The pound is facing an “existential crisis,” the Bank of America warned today, saying that the British currency is facing struggles similar to those in emerging markets.
“Whilst not wishing to over-exaggerate GBP’s predicament as some kind of ‘end of days’ scenario, we are concerned that the increasing politicisation of UK policy undermines the GBP in ways that would appear [emerging market]-like,” Kamal Sharma, a strategist at the bank, said in an analyst note today.
“We sense something is changing in the UK with the BoE increasingly hard to decipher and less transparent; a failure to discuss and acknowledge that Brexit has been a significant headwind to the supply side and sense that the BoE is losing control over its mandate,” Sharma said.
“Central bank credibility is the life-blood for any currency; political interference rarely ends well and adds to the sense that the UK is exhibiting EM-like conditions,” he said.
Similar parallels between the British currency and emerging market currencies were made in the past during the UK’s drawn-out exit from the European Union.
“We have held a bearish call on GBP for some time and expect further weakness through the rest of the 2022,” Sharma warned.
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