Bank Forecasts for the British Pound (GBP USD) in 2021: Under Pressure
Forecasts for the British Pound (GBP) in 2021 vary from bank to bank and from month to month. This article looks at the general trend and how it might impact your home currency.
With the coronavirus pandemic, continued frustrations over Brexit and the UK suffering the biggest economic recession amongst major economies, most bank analysts predict the Pound Sterling will continue to be under pressure in 2021.
Banks are focusing on how deep the recession will be and long it will last. This means the GBP will probably continue to suffer against other currencies.
However, not all is gloomy. The USD is still relatively weaker than the GBP, which is acting as a prop for the GBP USD exchange rate.
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Will the GBP/USD get stronger in 2021?
Unlikely. It will probably remain around current levels.
Let's examine the 5 most possible reasons the British Pound will remain weak at current forecast levels:
- Coronavirus pandemic has a second wave that worsens in the UK, increases pressure on public health systems
- A prolonged global recession could mean less trade and lower demand for British imports, weaker local economy
- The UK economy suffers a recession and inflation only slowly and gradually picks up, increasing the chance of interest rate cuts
- Worries escalate over a Brexit deal, devaluing the British Pound against other currencies
- The US election runs smoothly, the economy improves, US economic stimulus works and the Federal Reserve (central bank) raises interest rates, the USD strengthens
How does a weaker British Pound affect me?
Expats and Pensioners
A weaker pound is disastrous for British people living abroad. Many who have moved overseas will see a dramatic fall in spending power.
For pensioners, many who have retired abroad will see a dramatic fall in the spending power of any UK state or private pension income with a weaker Sterling.
A couple years ago £100 pounds would have gotten you $200 in Australia, one of the most popular retirement destinations for British expats. But now the same £100 pounds of income will only return around $180 Australian dollars, over 10% less.
If you’re in a hurry to sell your UK asset, such as a house or company, to support your lifestyle overseas, you might get more interest from foreign buyers with a weaker pound. While you’ll get more demand for your asset, you might not get the value you want from the sale.
With the coronavirus pandemic and a weaker currency, it’s not the best time for Brits to go abroad.
What are the key influences on GBP forecasts in 2021?
1. British (UK) Economy
The UK is in recession, but there are signs the UK is emerging from it and stimulus is working. Although this is good for the GBP, there are still too many uncertainties. Many are unclear on what will happen next given the dual impacts of the coronavirus pandemic and Brexit, which is negative for the Pound.
British politics has a big influence on the Pound. When the UK left the European Union in 2016, many people questioned whether the UK would be better off, which created much uncertainty. Greater uncertainty from politics means investors will sell the GDP, because there is a greater chance of it getting weaker.
3. Other Currencies
The US dollar (USD) significantly influences the GBP. Generally, when the USD gets stronger, the GBP is relatively weaker and vice versa. Interestingly, the pound sterling is one of the relatively few currencies that is worth more than the US dollar (meaning that one pound buys more than one dollar). A weaker US dollar is expected by banks for 2021, which should prevent an even weaker British Pound currency.
GBP to USD
British Pound bank forecast currency pairs
GBP to EUR forecast
GBP to AUD forecast
Banks are expecting the Pound Sterling to strengthen against the Australian Dollar in 2021, as Britain actively manages coronavirus and its exit from the Eurozone. However, there could be hiccups along the way.
GBP to NZD forecast
Bank analysts agree the New Zealand Dollar will continue to come under greater downward pressure compared to the British Pound in 2021.