Sterling will perform strongly this year but only if UK avoids no-deal, say experts

STERLING could be a strong performer in 2019 if the uncertainty over Brexit is dispelled – causing investors to back the currency, analysts believe.

The pound hit lows of $1.25 in December on intense political uncertainty but economists suspect this worry is over-done. Sterling is expected to rise to $1.38 by the end of 2019, according to the consensus forecast compiled by Focuseconomics.

“We currently forecast the pound to be at $1.41 at end-2019,” said Nick Johnston at Fitch Solutions. “This is predicated on our core view that despite elevated uncertainty, the UK will be forced into an even softer Brexit than the ‘Chequers’ plan withdrawal agreement tabled by the Conservative party.”

Andrew Wishart of Capital Economics believes a Brexit deal would push the pound even higher: “Our central scenario is that the Government’s deal eventually passes. In this case, we think that the economy would gather pace in the transition period, and the Bank of England would hike rates three times in 2019, pushing sterling up to $1.45 by year end.”

This would take the pound back to its level in the pre-referendum months of 2016, though not to the mid-$1.50s of 2015 or the 2014 peak of more than $1.70. Such an increase could push inflation down as the stronger pound would help reduce the cost of imports. Economists already expect inflation to slip below the Bank of England’s 2pc target in the coming months as the lower price of oil pushes down petrol and energy costs.

A stronger currency could help households further with the cost of living. However, Brexit remains the key risk. “If the UK departs the EU in disorderly fashion, sterling could fall by another 10pc on a trade-weighted basis in 2019,” said Andrew Goodwin at Oxford Economics.