Goldman Sachs, IMF, Deutsche Bank and other institutions are optimistic about the economic prospects of the UK. After the Labour Party won the general election, British politics became more stable, and the party also promised to implement relevant policies to stimulate the economy, all of which are favorable factors for the pound. However, this week the UK will announce June inflation, and if it rises, it may stimulate the Bank of England to cut interest rates, which is a risk facing the pound.

Investment banks are optimistic about the prospects of the UK economy

On July 16th, the IMF raised its economic growth forecast for the UK in 2024, from 0.5% to 0.7%, providing a boost to the new UK government. This has elevated the UK's ranking from second to last only before Germany in 2023 to parity with Italy and Japan.

The IMF has reiterated its forecast for a 1.5% economic growth in the UK by 2025, at which point the UK will rank third in the G7 with a growth rate of 1.5%, second only to Canada and the United States.

The Labour Party won the general election less than two weeks ago, promising to reform the planning system and increase public and private investment.

After two years of stagnation, the UK fell into a mild recession in the second half of 2023. However, the GDP growth rate in May exceeded analysts' expectations, reaching 0.4%, and activities such as the 2024 European Championship are expected to boost economic activity.

Earlier this month, Goldman Sachs raised its forecast for UK economic growth in 2025 by 0.1 percentage points to 1.6%. The report cites the New Labour government's fiscal plan, which includes planned reforms and closer trade relations with the European Union.

Last Friday, Deutsche Bank joined Goldman Sachs in raising its expectations for the UK economic outlook. The bank's economists said in a report that they currently expect UK GDP to grow by 1.2% this year, far higher than the previous forecast of 0.8%.

Deutsche Bank stated that Germany's May GDP showed strong performance in the professional services and construction industries, and the European Championship is expected to further boost the hotel and leisure industry.

Meanwhile, analysts from Jefferies stated in a recent report that the size of the Labour Party's majority in parliament will make the UK appear "relatively stable", and coupled with regulatory reforms, it may increase the attractiveness of UK assets.

BNP Paribas stated that political factors are another positive factor, as the Labour Party's overwhelming victory in the general election has ushered in a period of political stability, which should be a good sign for the pound.

Rising inflation and Bank of England interest rate cuts remain potential risks for the pound

Although investment banks are optimistic about the outlook for the UK economy, which is positive for the pound, they are still wary of potential risks such as rising inflation and the Bank of England cutting interest rates.

On Wednesday, July 17th at 14:00 Beijing time, the UK will release its inflation data for June.

BNP Paribas said in a report, "Inflation and employment data will be released this week, and the threshold for the data to be weak enough for the Bank of England to adopt a more dovish tone may be high

Michael Pfister, a foreign exchange analyst at Deutsche Bank, said that before the May interest rate meeting, UK inflation data also showed that inflation stickiness was more persistent than expected. But the Bank of England still conveyed dovish signals at its May meeting. In short, the market should not underestimate the fact that the Bank of England is about to reverse interest rate trends, even though some policymakers now point out the existence of inflation risks.

Pfister said that if the Bank of England cuts interest rates for the first time in two weeks, it could limit the upward potential of the pound, at least in the short term.

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