**Citi: GBP/USD to Hit 1.24 by 2027 Amid Persistent Headwinds**
*By Forex Factory News Team, reporting on insights from the original article at Forex Factory*
**Overview**
Citi, one of the world’s largest financial institutions, has recently revised its forecast for the GBP/USD currency pair, projecting the rate could plunge to 1.24 by the year 2027. This long-term bearish outlook is driven by a combination of macroeconomic, fiscal, and political factors. The forecast signals a challenging period ahead for the British pound against the US dollar, with both domestic and global pressures likely to prolong Sterling’s underperformance.
This article analyzes Citi’s rationale for the downgraded target, explores the underlying economic fundamentals, and examines potential risks and opportunities facing GBP/USD over the next several years. Key themes include the UK’s economic stagnation, political instability, lingering Brexit penalties, and the ongoing strength of the US dollar. The content below draws directly from Citi’s research insights and the original reporting on Forex Factory.
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**Summary of Citi’s GBP/USD Forecast**
– **Target Rate**: GBP/USD projected to fall to 1.24 by 2027
– **Current Context**: Trading in a range of 1.27-1.28 (as of June 2024)
– **Forecast Horizon**: Downside progression over the next three years
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**Key Drivers Behind Citi’s Bearish Outlook**
Citi’s forecast centers on several interrelated drivers weighing on the British pound. The following sections explore these themes in detail.
### 1. Weak UK Economic Growth Prospects
Citi identifies subdued economic expansion as a primary reason for Sterling’s projected depreciation.
– **Stagnation**:
– UK GDP growth has lagged other advanced economies for much of the post-pandemic period.
– The Office for National Statistics (ONS) noted tepid quarterly growth, with real GDP only slightly above pre-pandemic levels by mid-2024.
– Business investment remains weak; consumer sentiment is fragile due to higher borrowing costs and inflation persistence.
– **Inflation vs. Wages**:
– While inflation has moderated from its 2022-2023 peaks, real wage growth remains subdued.
– UK inflation is forecast to remain above the Bank of England’s 2% target well into 2025, sapping household purchasing power.
– **Debt Overhang**:
– High levels of both public and private debt constrain the government’s and consumers’ spending ability.
### 2. Fiscal and Policy Challenges
The UK faces a precarious fiscal outlook, further eroding confidence in Sterling.
– **Budget Deficit**:
– The UK continues to run a significant deficit, projected at 4-5% of GDP across the forecast period, according to the Office for Budget Responsibility (OBR).
– Rising interest payments make budget consolidation more difficult.
– **Limited Fiscal Space**:
– Low economic growth and political resistance to austerity measures restrict the government’s room for maneuver.
– Any meaningful fiscal tightening is likely to be politically sensitive and could suppress growth further.
– **Taxation**:
– Increased tax burdens on individuals and businesses could weigh on economic activity and dampen foreign investment appeal.
### 3. Political and Structural Uncertainty
Persistent political turmoil and the unresolved impacts of Brexit continue to darken the UK’s medium-term outlook.
– **General Election Uncertainty**:
– At the time of Citi’s forecast, the UK was preparing for a general election; risks include a hung parliament or an unstable majority.
– Political gridlock could delay or dilute necessary economic reforms.
– **Brexit Effects**:
– Four years after leaving the EU’s single market, the UK still faces lower trade volumes, supply chain complications, and diminished service sector access to European markets.
– Firms have re-routed investment to the continent or scaled back
Read more on GBP/USD trading.