Global: Market Braces for a Weaker Pound as Bank of England Moves Forward with Rate Cuts

With UK inflation easing to 1.7% in September, the Bank of England (BoE) is anticipated to adopt a more measured approach to interest rate cuts, a move likely to further weaken the British pound.

Nigel Green, CEO of deVere Group, one of the largest independent financial advisory and asset management firms globally, emphasized the need for investors to take heed of this shift.

“The recent drop in core inflation from 3.6% to 3.2%, alongside broader economic deceleration, indicates that the BoE will probably continue with gradual 25-basis-point rate cuts starting in November. We predict rates will eventually fall to around 3%,” Green stated.

He also noted that fiscal measures to be announced in the upcoming October 30 budget could significantly influence market sentiment and the pound’s trajectory.

“As rates are cut, the pound is expected to weaken, posing challenges for investors, particularly those with exposure to foreign assets or UK assets with international ties. For UK investors with global holdings, a weaker pound increases the cost of acquiring foreign assets and could lower returns when profits are converted back to sterling.”

Conversely, Green pointed out that international investors may find opportunities in the UK’s weakened currency, particularly in undervalued equities and real estate.

“British exporters stand to gain a competitive advantage as their products become more affordable for international buyers. Investors should focus on sectors such as pharmaceuticals, technology, and aerospace, which are well-positioned to benefit from robust global demand,” he added.

The UK’s real estate sector also presents an attractive prospect for international investors. With the pound losing value, properties, especially in prime areas like London, become more affordable.

Green highlighted that international interest in UK real estate is growing, noting that “this is an opportune moment for global investors to consider British properties at a favorable exchange rate.”

Commodities, particularly those priced in US dollars, offer another pathway for investors amid currency volatility. Assets such as gold, oil, and industrial metals are expected to increase in value in sterling terms, providing both diversification and a hedge against the weakening pound.

As the BoE continues its incremental rate cuts and the October budget approaches, investors are advised to reassess their portfolios. Green emphasized that diversification will be critical for managing both currency and policy risks while seizing emerging opportunities.

“Now is the time to diversify across asset classes, sectors, and geographies to mitigate the risks associated with a weaker pound and to capitalize on sectors set to benefit,” Green concluded.

Fixed-income investments could also become more attractive as interest rates fall, and investors may find an advantage in locking in current yields before further rate cuts diminish returns.

“The anticipated weaker pound environment presents both challenges and opportunities for savvy investors in the UK and worldwide,” Green remarked, underscoring the need for proactive portfolio adjustments.