Sterling could be facing an ‘existential’ crisis analysts warn

Sterling could be facing an existential crisis, analysts have warned, with the pound being compared to currencies in emerging markets. 

The outlook for sterling ‘looks grim’, according to research from Bank of America, which said the pound ‘is no longer the doyen of foreign exchange markets that investors think it is’. 

The pound has fallen 6.6pc this year in dollar terms, leaving it as one of the worst performers among the world’s major currencies. Only the Norwegian krone, Swedish krona and Japanese yen have fallen further. 

‘Sterling’s fall from grace has been epic and in many ways has caught the investor community by surprise,’ Bank of America analyst Kamal Sharma wrote in a note to clients. 

He also said there is a risk that the UK’s current account deficit, a deterioration of the relationship with the European Union over Northern Ireland and questions around the Bank of England’s credibility combine to create a ‘perfect storm’ for the currency. 

And he accused the Bank of ‘losing control over its mandate’. Families have been battered by soaring inflation this year, which has led to the Bank of England increasing interest rates on four occasions since December. 

As a result, Sharma claimed the Bank has become ‘hard to decipher and less transparent’, leading to the pound becoming increasingly ‘erratic’. 

He said: ‘Investors are increasingly discussing the pound as taking on emerging market characteristics. Whilst not wishing to over-exaggerate the pound’s predicament as some kind of ‘end-ofdays’ scenario, we are concerned that the increasing politicisation of UK policy undermines the pound in ways that would appear emerging market-like.’