Morgan Stanley has identified a potential risk to the sterling’s 5%-20% premium due to the persistent current account deficit in the UK, according to their analysis of the country’s trade data. The bank’s scrutiny comes ahead of the anticipated publication of the Pink Book.
According to Morgan Stanley, the sterling could serve as an “equilibrator” in this situation. This suggests that a depreciation of the currency might be a strategy towards achieving economic equilibrium.
The bank’s analysis indicates a shift in the UK’s trade composition. While goods trade remains sluggish, there has been a noticeable escalation in services trade. However, despite these changes, no clear shift away from Europe in trade relations has been observed.
In addition to these shifts in trade, Foreign Direct Investment (FDI) data suggests a slowdown in foreign investment into the UK. The combination of these factors may contribute to potential pressure on the sterling.