Payments and FX Market Outlook 2023: Economic Challenges & Trends

Economic uncertainty — both in the UK and worldwide — is likely to persist well into 2023.

For the foreign exchange market and for businesses hoping to expand in 2023, it is crucial to know where the economy currently stands and what can be expected out of the coming year. Moreover, with global efforts to enhance cross-border payments ongoing, businesses must keep an eye on one key emerging trend — the growing role of multilateral platforms in payments. 

In this article, we discuss the current state of the economy and forecasts for the year. Plus, we dive into the implications for the foreign exchange industry and what to know about upcoming trends.  


The State of the Economy in 2022 and Forecasts for 2023

In both the UK and across the globe, economic headwinds push forward financial uncertainty for businesses and consumers alike.  

According to a September 2022 report,  the British Chambers of Commerce (BCC) downgraded expectations for UK GDP growth in 2022 from 3.5% in quarter two to 3.3%. This is compared to 7.4% growth in 2021, showing a massive drop from 2021 to 2022 alone.  

Additionally, it is reported that the Consumer Price Index (CPI) inflation rate is expected to reach 14% in quarter four — though, notably, this rate is forecast to drop to 5% in 2023 and 2% (the Bank of England’s target rate) by 2024.  

Other key points in the forecast report include: 

  • Business investment is expected to grow to 2.7% in 2022 but drop to just 0.6% in 2023
  • Export growth is expected to reach 2.3% in 2022, 1.8% in 2023, and 1.2% in 2024
  • Import growth is expected to reach 7.7% in 2022, -3.8% in 2023, and 1.6% in 2024
  • Interest rates in the UK are expected to reach 2% in Q4 2022 and 3% in 2023 

With inflation at a 40-year high  — and annual inflation expected to exceed annual wage increases up to 2024 — it is hard to deny the looming recession facing the UK economy.  

Economic Challenges to Consider for 2023

While there are many considerations to keep in mind moving into 2023, a few key challenges exist for B2B and B2C companies aiming to keep revenues and capital stable as we continue to weather current economic headwinds. 

These challenges include: 

  • Consumer Confidence: Not just in the UK but across almost all economies, consumer confidence and spending have taken a massive hit. As consumers continue to become more anxious about their finances — leading to drops in household spending as well — global economic growth is certain to weaken to some degree.   
  • Waning Business Investments: With business investments expected to drop considerably in 2023, the business sector must consider how to maintain stable levels of capital, particularly in the business-to-business (B2B) space. As businesses spend less on physical capital, B2B companies must consider how to maintain greater stability through a flexible and agile approach to pricing, development, and other factors.  
  • Global Collaboration: Global expansion and collaboration has become the name of the game for both B2B and B2C (business-to-customer) companies. The most competitive companies today focus on expanding into new regions and markets where their capital, investments, and more may be put to better use. Businesses must find ways to remain global players while still maintaining a high level of stability despite global economic uncertainty.  

The impact of Economic Headwinds on the FX Industry

In general, inflation can have a moderate to severe negative impact when it comes to foreign exchange.  

With inflation currently booming in the UK, businesses must consider the effects this may have on the foreign exchange (FX) rate. Overall, inflation leads to a decrease in a country’s spending power, both for consumers and for businesses of varying sizes.  

Currently, the British pound (GBP) is worth more than almost all the competing world currencies. The problem becomes that, relative to its worth in years past, the GBP has dropped in value significantly. For example, in the early 1900s, the GBP was worth nearly five times the U.S. dollar (USD) — yet, in 2022, the exchange rate floated around 1 GBP for 1.13 USD.  

According to the Bank of England, the UK foreign exchange turnover rose 11% from $2,948 billion in April 2021 to $3,276 billion in April 2022. Compared to the USD and Euro, however, the GBP has not seen nearly the same turnover increase as these competing economies.  

Looking ahead in terms of how the current economic state of the UK may affect FX rates and the industry as a whole, the two key considerations are interest rates and inflation. 

In July 2022 article, Investopedia states that: 

“ — higher interest rates attract foreign capital and cause the exchange rate to rise. The impact of higher interest rates is mitigated, however, if inflation in the country is much higher than in others, or if additional factors serve to drive the currency down.” 

Though interest rates are rising in the UK, so are inflation rates — thus, the potential state of the FX industry in 2023 largely depends on how well Rishi Sunak’s government and the financial authorities in the UK are able to get inflation under control.  

For businesses within the UK looking to expand in late 2023, many factors — most notably the declining value of the GBP — may hinder this growth without proper planning.  

One solution that will be key for businesses to focus on is finding ways to pay suppliers and international business partners in their local currencies. Variable FX rates and heightened caution around foreign investment may cause international parties to be hesitant to work with UK-based companies. To address this, finding an effective cross-border payments and currency exchange solution is essential.  

The Key FX Trend Set to Emerge in 2023

In 2020, the G20 — an intergovernmental organisation comprised of 19 countries in the EU and the U.S. — developed a roadmap for enhancing cross-border payments. The goals of this roadmap include: 

  • Making cross-border payments and remittances faster, cheaper, and more transparent 
  • Maintaining the safety and security of cross-border payments
  • Supporting economic growth, international trade, global development, and financial inclusion 

The primary goals of the first two years of the project from 2020 to 2022 were to establish the fundamental and foundational elements required for proper analysis and guidance of enhancing cross-border payments. 

Now, according to a 2022 progress report, G20 is focusing on expanding the practical practices of the initiative, especially in terms of: 

  • Improving existing payment infrastructures to support the requirements of the cross-border payments market 
  • Increase the data quality and straight-through processing via enhanced data practices
  • Exploring potential new roles of payment infrastructures and arrangements 

Not only does this report highlight how international powers are working to better facilitate cross-border payments, but it also showcases one key trend for businesses to keep their eyes on as we move into 2023: the need for multilateral platforms capable of mitigating cross-border payment frictions 

A multilateral platform (MLP), in simple terms, is a payment platform that enables efficient and cost-effective payments between parties in different jurisdictions, regions, and/or countries.  

By utilizing and prioritizing MLPs in 2023 and beyond, businesses in the UK and other regions can find better ways to conduct business internationally while still maintaining financial stability that is fortified to withstand ongoing economic headwinds.  

Final Thoughts: Gain Peace of Mind with Freemarket 

Let’s face it, 2023 is set to be a difficult year ahead due to economic headwinds in play, geopolitical uncertainty and the fall out events of 2022.  We maintain cautious optimism and understand that where once businesses were wholly focused on growth and scale, 2023 may prove more about working with fintech partners who can help with the basics in payments and FX that can ensure resilience, choice, stability, continuity, speed and security.  At Freemarket, our platform is designed to connect you with providers in different jurisdictions at fair prices and efficient speeds.  

We leverage access to multiple global banking networks and bank relationships to optimize your payment systems and facilitate cross-border payments and cost-effective currency exchange. With our smart-order routing technology, we can provide your business with the best currency executions. 

To get started with Freemarket, get in touch with our team today.  

Want a recap of what happened in payments in 2022?  Check out our infographic below. 

 2022 Payments and FX Year in Review


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