Gloomy analysts have admitted it was “wrong” to underestimate Britain's economic prospects after new forecasts reveal that the pound will rise sharply against the dollar.
Investment bank Citi has disregarded a previous prediction that the pound would drop to parity with the dollar following the mini-budget.
New predictions suggest that sterling could rise towards $1.30 at the start of next year.
Currently the pound is trading close to a one-year high against the dollar at $1.26 after an economic activity boost and more durable housing market.
New predictions suggest that sterling could rise towards $1.30 at the start of next year
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According to Vasileios Gkionakis, head of European foreign exchange strategy at Citi, predictions of a “material correction” in house prices and a collapse in consumption fell through.
“We have been wrong, plain, and simple," Gkionakis wrote in a note to clients on Tuesday.
“The reality is that, while inflation exhibits some idiosyncratic persistence, contrary to what we expected, activity has proven far more resilient”.
The forecast has also been echoed by analysts at Natwest while Goldman Sachs said earlier this month that it had adopted an “outright constructive stance” on sterling.
The bank described it as a “new era” for the currency as the Bank of England is expected to continue raising interest rates in a bid to tackle inflation.
Kamakshya Trivedi, head of global foreign exchange at Goldman, said: “Essentially, we think that the same factors that acted as headwinds on sterling in 2022—mostly natural gas prices and the relative stance of Bank of England policy—have turned to tailwinds.
“The UK’s terms of trade have rebounded since August and, in turn, the magnitude of the likely real income squeeze has diminished meaningfully.
"At the same time, the housing market is showing tentative signs of stabilising.”
Investment bank Citi has disregarded a previous prediction that the pound would drop to parity with the dollar
PA
The Bank of England is expected to raise interest rates for the 12th consecutive time to 4.5 per cent on Thursday.
Speaking on GB News, former Chief Secretary to the Treasury, David Mellor said: "Talking down the British economy has been a habit of people really, in all the years I've been interested in politics.
"But the British economy and the British people, despite some of their awful political leaders, are stronger than we ever give them credit for and there is more resilience in the British economy.
"The British economy is more effective than a lot of its critics minded."
