Pound sinks below 1.3300, UK slowdown is 'almost inevitable'

The pound has sunk below 1.33 against the US dollar this morning, as investors prioritise hawkish Fed rhetoric and the upward repricing in US rates over any tailwinds to the UK economy from this week's drop in global oil prices.

The Bank of England has, of course, also placed outsized importance on the energy crisis for the path of its policy rate - suggesting that any hikes would be effectively contingent on a continuation of the conflict - so the recent pullback in oil prices should undercut the case for hikes just as much as it offers relief to UK growth.

Today’s business activity PMI figures were a bit of a disappointment, as while the manufacturing index ticked upwards modestly (52.0 from 51.7), growth in the far more important services sector sector (51.7 from 52.5) slowed more than anticipated.

Growth in Britain’s economy has been remarkably resilient so far this year, though we think that a slowdown is almost inevitable during the remainder of the year - energy costs have risen, borrowing costs are up, the jobs market continues to weaken and political uncertainty looks set to rear its ugly head again as we approach budget day next month.

We expect this to keep sterling under pressure in the near-term, though we do contend that GBP/USD appears a bit oversold at current levels.