TOP TREND 2022 DRAGFLATION: BRITISH POUND WILL FALL IN VALUE, MARKETS EXPECT

Investors are placing short bets against Britain’s pound sterling currency amid rampant inflation and slowing economic growth, the Financial Times reported.

The number of futures contracts wagering on a less-valuable pound is at its highest in three years, according to the Commodity Futures Trading Commission.

So far this year, the pound is down 7 percent against the dollar, the FT noted, with inflation running at 9 percent in April, the worst rate since at least 1989.

Inflation’s staggering pace will reduce foreign investors’ willingness to put money into the U.K.’s sovereign bonds, Sam Lynton-Brown, chief strategist for development markets at BNP Paribas, said to the FT.

Investors also see a growing prospect of a U.K. recession this year, which would hobble the Bank of England’s (BoE’s) ability to tame inflation by raising interest rates, the FT said. 

Britain’s inflation ran at 9 percent in April, the worst since at least 1989.

“By the time we get into the autumn in the U.K., the impact of inflation on household incomes [and] also of higher rates will be so marked that the window of opportunity for the BoE to raise rates will be closing,” Jane Foley, Rabobank’s chief currency strategist, told the FT.

The BoE has hiked rates four times since December, placing it now at 1 percent.

The bank’s rate-setting committee will meet Thursday, when it is likely to raise its key rate to 1.25 percent, many analysts expect.

It would be the first time since 2009 that the rate exceeds 1 percent.

Still, the central bank is “helpless” to reduce inflation, BoE governor Andrew Bailey said recently.

“Even if they think that, they shouldn’t be telling everyone,” Mark Dowding, chief investment officer for Bluebay Investment Management, told the FT. “It’s only going to push up inflation expectations further.”

Despite the rate rises, the pound has continued to sag against both the dollar and euro this year. 

The kingdom’s economy contracted 0.1 percent in March and eked out a 0.8-percent gain in April, putting the U.K. on track to enter a period of stagflation, with no economic growth but ever-rising prices. 

May’s economic result has not yet been released.

“A stagflationary environment would be pretty dire for all U.K. assets and for the pound,” Dowding said.

“We could end up where the pound is on its way to parity with both the dollar and the euro,” he added.

On Monday, 13 June, the pound closed at 1.21 to the dollar and 1.17 to the euro.

TREND FORECAST: Before the year is over, as we note above, the U.K. will be suffering from our Top 2022 Trend of Dragflation.

The government-imposed ceiling on utility bills will increase by as much as 46 percent, analysts have predicted. The increase will cripple much of Britain’s consumer economy, pushing it closer to recession if it has not got there already.

At the same time, prices will continue to rise as the weakened pound makes imports more expensive, especially fossil fuels, which must be paid for in dollars.

A contracting economy plus rising prices is the definition of Dragflation.