HSBC believes the Pound could outperform if the UK’s political transition is smooth and investor confidence improves. However, the bank’s main scenario still suggests a softer outlook for Sterling.
According to HSBC, a government led by Burnham could help reduce uncertainty, provided fiscal policy remains credible and the new administration avoids aggressive spending plans that could unsettle financial markets.
The bank argues that Sterling can “dare to dream” if the next government manages to strengthen private-sector confidence, encourage investment and improve productivity growth.
HSBC identifies three potential sources of support for the Pound: a transparent fiscal framework, greater policy stability and reforms aimed at stimulating private investment. A more positive relationship with the European Union could also boost demand for UK assets.
At the same time, the bank warns that the UK’s public finances remain under pressure, leaving little room for major fiscal stimulus. Businesses have also become more cautious after years of political and economic instability.
HSBC’s base case assumes that these structural challenges will remain in place, meaning the Pound is likely to continue moving mainly in response to global economic cycles rather than a lasting improvement in domestic conditions.
For this reason, HSBC maintains a generally cautious view on Sterling, while noting that a credible pro-growth policy programme could produce a much stronger result than markets currently anticipate.
