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The IMF downgraded a swathe of economic forecasts yesterday, with a particular blow for the UK.
Fresh hopes that the war in the Middle East would reach a negotiated end point sent the pound close to a two-month high against the US dollar yesterday. The Strait of Hormuz remains a point of contention, although President Trump suggested talks between the two sides would resume in the coming days.
Ever the voice of reason, the International Monetary Fund (IMF) warned that a prolonged conflict could lead to a sharp global downturn. The United Kingdom would be the most affected, IMF analysts predicted, with painful declines in growth, a surge in inflation and high unemployment.
The IMF knocked 0.5% off its growth projection for the UK economy in 2026, taking it from 1.3% to just 0.8%. At the same time, it now believes unemployment will peak at 5.6% as the gas-dependent economy bears the brunt of the energy supply crunch.
The same report did also downgrade the outlook for the entire global economy. The United States would also see a lower expansion in GDP, even in a mild scenario, according to analysts.
In a rare break from the White House, chancellor Rachel Reeves decried the Iran war as “folly”, underscoring the increasing divergence between Number 10 and Washington. She was “very frustrated and angry” with Trump’s actions, as per an interview with the Daily Mirror.
Former Bank of England governor Mark Carney’s Liberal party took majority control of Canada’s parliament with victory in three local elections to start the week. The Canadian dollar was largely unmoved in the wake of those results, which should help Carney advance his legislative agenda.
The war in Iran has at least helped some companies, although not exactly the same underdogs it’s easy to root for. JPMorgan and Citi were the latest to join Goldman Sachs in posting bumper profits, as traders made huge revenues helping clients navigate the fallout from the conflict.
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GBP: Rain on the parade
The IMF did rather rain on sterling’s parade yesterday, slashing its full-year growth forecasts for the UK economy by more than any other in the G7. That did not stop the pound enjoying a positive day as the risk-on mood helped it record strong advances over both the euro and the US dollar.
GBP/USD: the past year
EUR: Spain points to resurgent inflation
A raft of Spanish inflation releases came in above expectations in March. While Spanish data is typically not much of a market-mover for the euro, it may have had an impact yesterday as traders extrapolate the implications across to larger European economies.
GBP/EUR: the past year
USD: PPI cements trend
The US dollar was weakened anyway before March’s PPI report cemented that trend. Producer prices increased by 0.5% in March, far below the 1.3% expected. Goods prices and the annualised rate of price increases both came in at their highest levels since 2023.
EUR/USD: the past year
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