Forecast for GBP (British Pound) in 2022; GBP performance against main currencies
This article looks at the trend in the British Pound forecast in 2022.
Bank forecasts for the British Pound in 2022
Analysts at ING see GBP/USD rising to 1.37 in early 2022 before they forecast the pair falling back to 1.34 by the end of the year. They say “it is not a popular view, but we think GBP can withstand the strong dollar onslaught better than some. We doubt Cable has to trade substantially under 1.30 and expect the early BoE tightening to provide GBP with a cushion.”
Meanwhile analysts at The Canadian Imperial Bank of Commerce (CIBC) see GBP/USD falling to 1.31 by June next year amid a backdrop of softer consumption and trade frictions with the EU. However, they also see GBP/USD rising to 1.36 by the end of 2022.
Analysts at Citibank think that the pound has been remarkably stable given the Brexit tensions. They also believe that Brexit tensions could deteriorate next year, forecasting that GBP/USD will fall to 1.29 over the next 6 -12 months.
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What’s the impact of a weak British Pound (GBP)?
Let's examine likely reasons the British Pound could weaken from current forecast levels:
- A weak pound is good news for UK exporters as their goods become cheaper to overseas buyers. Demand often rises as the UK exports more goods and services.
- A weaker pound is favourable to those overseas countries which import British goods and services as they are able to purchase at a cheaper rate.
- A weaker pound is not good for overseas countries which export to the UK. This is because the weaker pound means that British buyers can purchase less.
What’s the impact of a strong British Pound (GBP)?
- A stronger pound means that imports become cheaper which is good news for British retailers and also good news for countries which export goods to the UK.
- British manufacturers also enjoy cheaper raw materials with a stronger pound. However, this benefit can only be retained if the finished product is sold in the UK.
- Exported goods and services become more expensive for international buyers which could mean that demand falls.
What are the key influences on GBP forecasts in 2022?
There are many factors which impact the value of the pound. These include the relative pace of economic growth in the UK and expectations of future interest rate levels.
The role of politics influencing the pound has been hard to ignore since the British government called a referendum on it’s membership to the European Union back in 2016.
1. UK Economy
- When the UK economy gets stronger, GBP usually rises. The pound rose across last year as the British economy recovered from the pandemic.
- Should the economic recovery continue across 2022 then the pound could push higher.
- On the other hand, should the British economy see growth start to stall then the pound could weaken.
- UK politics has a big influence on the British pound. This has been particularly noticeable in recent years with Brexit.
- Brexit issues have continued in 2021 despite the UK leaving the EU on 31st December 2020. The problems have centred on the Northern Ireland border.
- Brexit issues could continue into 2022 and beyond. When tensions rise between the UK and the EU the pound often falls. When relations improve, the pound often rises.
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.
- The pound tends to also broadly track the Euro in the sense that if EURUSD rises, then it often pulls GBP/USD higher. This same is often true when EURUSD falls, GBP/USD often also falls.
GBP/USD performance in 2022
- Major banks’ GBP/USD forecasts for 2022 vary substantially. ING sees GBP/USD rising in early 2022 to 1.37 it then predicts the pair will fall across the rest of the year.
- Meanwhile analysts at CIBC Capital Markets predict GBP/USD will fall early in 2022 and rise higher to 1.36 by the end of the year.
- Citibank expects GBP/USD to decline to 1.29 across the coming 6-12 months.
GBP/EUR performance in 2022
- The euro could fall in value against the pound in the coming year if the eurozone economic recovery is slower than the recovery in the UK.
- Should the Bank of England plan to start raising interest rates before the European Central Bank then GBP could get stronger against the EUR.
- The BoE is expected to raise interest rates early on in 2022. The ECB is not expected to raise interest rates in 2022.
- Unresolved post Brexit problems, particularly surrounding the Northern Ireland border, could limit gains in GBP.
- ING forecast EUR/GBP will fall to 0.82 across 2022.
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US Dollar against other currencies
- New Zealand’s economy has recovered strongly from the pandemic. A rebound in tourism and education, two key sectors for New Zealand could see the NZD rise against GBP.
- After a bad pandemic in early 2021 the Indian economy is recovering well. Should the Indian central bank, the Reserve Bank of India, show signs that it wants to raise interest rates, then the Indian Rupee could strengthen.
- How the pound performs against the Japanese yen could depend on how the global economic recovery progresses into 2022.
- JPY is a safe haven currency, which performs well in times of global economic or political uncertainty.
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