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Interest Rate Differentials · Pantheon Macroeconomics · Pound Sterling · UK Housing Market
Samuel Tombs of Pantheon Macroeconomics reports that Pound Sterling (GBP) has surprisingly failed to appreciate against the Euro and US Dollar, despite rising real interest rate differentials that suggest GBP should trade at $1.40 and €1.24.
Current exchange rates are $1.26341 for GBP/USD and €1.15848 for GBP/EUR. Tombs attributes this puzzling underperformance to elevated uncertainty surrounding the UK inflation outlook, despite strong investor sentiment for Sterling appreciation, which is at its highest since early 2018.
Concurrently, the UK housing market faces a significant downturn, with Tombs forecasting a 10% peak-to-trough fall in house prices by early next year. This decline is driven by an increasing supply of unsold homes, primarily from buy-to-let landlords exiting the market due to mortgage rate changes, policy adjustments, and new energy efficiency regulations, a trend confirmed by almost two-thirds of RICS surveyors.
Pantheon: Sterling Undervalued; UK House Prices to Fall 10%(current)
