The outlook for the pound in 2023 is expected to continue to be bleak due to the increased risk of economic recession.
This follows a global energy crisis expected to continue as a result of the Russian and Ukrainian wars, which have caused businesses and households across Europe to suffer, including in the UK.
Not only that, but inflation that is still high also inhibits the prospects for the UK economy next year due to the ongoing energy crisis.
In the meantime, the post-Brexit issue is basically still unfinished and the impact is yet to be seen as Covid-19 and the war in Ukraine divert the focus from the British economy and the impact of Brexit.
To get a clearer perspective, the market needs to look back at the performance of the pound in 2022. GBP/USD opened the year trading above the 1.35 price level, but on the last day of trading it was around 1.20.
On September 26, history was made when the currency plunged to an all-time low of 1.0356 following a mini-budget by the Liz Truss administration that led to her stepping down as UK prime minister.
As a result, Prime Minister Rishi Sunak's administration needs to restore confidence in public financial prospects and hope that inflation will decline next year.
Nevertheless, the action by the Bank of England (BOE) is most important for the pound currency in restoring price stability in the market despite having to bear the consequences by facing the recession.
As of today, the BOE has increased rates by 340 basis points in an effort to deal with soaring inflation and this move is expected to continue until 2023.
