In the News Teaching Activity – is the pound appreciating? (June 2024)

At the end of May, the £ reached its strongest level against a basket of currencies since the Brexit referendum.

The UK economy’s rapid first quarter economic growth rate has contributed to a strengthening of the pound against global currencies, with Sterling hitting its strongest levels since the Brexit vote. Indeed the £ has appreciated 1.14% against the euro and 1.13% against the $ this year. This was attributed to the economy's improved performance in 2024, marked by strong growth and increasingly optimistic business surveys, potentially ending the post-pandemic stagnation. Delayed interest rate cuts by the Bank of England, due to persistent inflation pressures, further supported the pound. However, some uncertainties linger regarding the timing of future interest rate cuts and potential political shifts with the forthcoming election, so analysts are cautioning against overestimating sterling's strength.

Has sterling finally recovered from the impact of Brexit? (cityam.com)

1 Explain what is meant by the sterling trade-weighted exchange rate.

2 Assess how stronger-than-expected growth and keeping interest rates high for longer affects demand and supply for the £.

3 Discuss the advantages and disadvantages of an appreciation of the £ for the UK economy.