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Pound 2023 Outlook

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The BOE is currently in a difficult position, making it harder to predict the future of monetary policy in the UK. It faces both the US and EU problems together. Recent changes in the MPC vote have led to a split, with different members proposing different solutions to the problem. The shift in the vote counts could determine whether or not the pound is able to recover or fall to parity with the Euro and the dollar.

We need to look back at one of the most dangerous episodes on UK capital markets for decades to really understand the situation.

The September shock is still alive

Then Chancellor Kwarteng presented his now infamous “mini-budget”. The main issue with it is that it didn’t fully describe how the actions would be funded. Because of this uncertainty, long-term interest rates began to rise. This triggered a series of events because pension funds used large amounts of stable long-term bonds as hedging. The market was so liquid that they were often facing margin calls of up to a trillion pounds. Naturally, the pound tanked.

The BOE was then forced to step in and provide some…



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