Accumulation of bad news from the UK justifies a weak Sterling – Commerzbank

GBP/USD has dropped below 1.2250. Economists at Commerzbank note that the dire overall situation the UK is currently in justifies a weak Sterling.

Why the state of Great Britain is GBP negative

“Whereas the most urgent real economic factors putting pressure on the economy seem transitional on the Continent (the threat of a gas crisis and the resulting high energy prices) the urgent British woes seem to be more permanent. It is therefore not implausible to assume a long-term growth disadvantage for the British economy as compared with Europe.”

“As long-term growth is relevant for real exchange rates the prospect of that plays a role for today’s exchange rates. And that is why this accumulation of bad news from the island constitutes a sufficient justification for Sterling to be weak.”