Analysts see one chance in four sterling will reach parity with euro in next year

Sterling stands one chance in four of weakening to parity with the euro in the coming year, according to analysts polled by Reuters this week, but only a few said that was their central forecast. Sterling has been whacked by Britain's decision to leave the European Union, falling around 17 percent against the euro since the June 2016 Brexit referendum. One euro was worth over 91p late on Wednesday.
Asked the chance of the two currencies being equal in value at any point in the coming year, the median likelihood was pegged at 25 percent. "It's only under a hard Brexit scenario that we see it getting towards parity. The key determinant of sterling movements in the next 12 months is how the negotiations evolve," said Oliver Mangan at AIB.
Negotiations between Britain and the rest of the EU have been fractious, something Reuters polls have repeatedly said would be bad for sterling. But the chances Britain will undergo a disorderly exit have eased a bit, according to a Reuters poll last week. So medians in the poll of over 50 strategists suggest one euro will get you 91.1 pence in a month, the same in six months - half way through the initial Brexit negotiations - and 92.0p in a year, a weaker view for sterling than in an August poll.
Britain's economy avoided the expected post-referendum slowdown, but it is now lagging behind a fast-recovering euro zone. Businesses are worried about Brexit and consumers feel the pinch of rising inflation and the weak pound, surveys showed on Tuesday. Meanwhile euro zone growth is accelerating and inflation is rising.
The European Central Bank policymakers is expected to announce in October it will begin reducing its monthly asset purchases, according to another Reuters poll. No change is expected at their meeting later on Thursday. Bank of England rate-setters don't meet until next week and most economists polled by Reuters expect them to leave interest rates unchanged between now and the end of initial Brexit negotiations, in a little under two years.
Only 14 of 59 economists expected one or more rate rises by the end of 2018. Michael Saunders, a BoE policymaker who voted to raise rates in August, said last week the Bank was "not indifferent" to the value of sterling but there was no particular level that worries the Bank. Inflation is already running well above the BoE's 2 percent target - in a large part because of the currency's decline since the referendum - and any further drop in the pound's value could add to pressure on the Bank to act.
Against the dollar, sterling has weakened about 9 percent since the referendum and was trading above $1.30 on Wednesday. It made its biggest daily rise in nearly two months on Tuesday, before a parliamentary debate over Prime Minister Theresa May's European Union repeal bill. If May manages to get the bill through parliament, strategists say, sterling might gain, since that would ease a little of the uncertainty that has kept the currency under pressure.
Median forecasts suggested in one month a pound would be worth $1.29, the same in six months and $1.30 in a year. "Unless Brexit negotiations fail, the UK economy is in good shape, which should allow cable to remain close to $1.30," said Asmara Jamaleh at Intesa Sanpaolo.