What Is the GBP?

What Is the GBP?

Let me tell you about the GBP—it's the abbreviation for the British pound sterling, which is the official currency of the United Kingdom, along with the British Overseas Territories like South Georgia, the South Sandwich Islands, and the British Antarctic Territory, plus the U.K. crown dependencies including the Isle of Man and the Channel Islands.

You see the British pound sterling represented by the pound sign (£), and people often call it “sterling” or use the nickname “quid.”

Key Takeaways

Here's what you need to know: GBP stands for the British pound sterling, the UK's official currency. It's symbolized by the pound sign (£) and goes by “sterling” or the nickname “quid.” In trading, the most common pairs with the British pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD).

Trading the GBP

When it comes to trading, the British pound holds its own against the U.S. dollar (USD), euro (EUR), and Japanese yen (JPY) in terms of daily volume. The top currency pairs involving the pound are the euro (EUR/GBP) and the U.S. dollar (GBP/USD), and traders in foreign exchange refer to GBP/USD as cable.

The penny sterling, or pence, is 1/100th of a pound, and you'll find many stocks traded in pence instead of pounds—stock exchanges might use GBX to denote pence. While the official name is pound sterling, in accounting or forex contexts, “sterling” or STG often comes up more frequently.

Several currencies are pegged to the British pound, such as the Falkland Islands pound, Gibraltar pound, Saint Helena pound, Jersey pound (JEP), Guernsey pound (GGP), Manx pound, Scotland notes, and Northern Ireland notes.

Fast Fact

Here's a quick fact for you: The GBP, or British pound sterling, is the oldest active legal tender in the world.

History of the GBP

The British pound became the official currency of the United Kingdom when England and Scotland united in 1707 to form a single country, but it was used as money as far back as the year 760. Up until 1855, when printing started, the Bank of England hand-wrote all banknotes.

The pound served as currency in British Empire colonies like Australia, New Zealand, and Canada. In the late 19th and early 20th centuries, many nations linked their currencies to gold prices, and the gold standard provided a uniform way to value world currencies. Before World War I, the UK used the gold standard to set the pound's value.

At the start of World War I, the country dropped the gold standard, brought it back in 1925 after the war, and then abandoned it again during the Great Depression. By 1971, the UK let the pound float freely, with market forces deciding its value. In 2002, when most EU nations adopted the euro, the UK stuck with the GBP, which proved wise since the UK left the EU in 2020.

Legislation and the GBP

In the June 2016 referendum, British voters chose to leave the European Union via Brexit, and the GBP dropped sharply after the UK's split from the EU, fluctuating with trade negotiations.

The pound sterling fell again in September 2022 following Prime Minister Liz Truss's announcement of tax cut policies. While the Truss government intended to enhance UK economic productivity, investors and forex traders worried that these cuts would heighten already high inflation and debt, leading GBP/USD to hit an all-time low of 1.03 on September 26, 2022.

The Spring Budget 2024, presented by UK Chancellor Jeremy Hunt, brought in several changes to promote economic growth and ease tax burdens on individuals. Key points include reductions in National Insurance contributions, ending the 'non-dom' tax regime, introducing a UK ISA, and adjustments to capital gains tax on residential property. The budget also covers transitional setups for current non-doms and the rollout of British savings bonds. These steps aim to encourage investment, job creation, and tax reductions, which could affect the UK economy and the pound's value moving forward.

GBP and the Bank of England

The Bank of England has a major role in shaping the GBP's value through its monetary policy decisions. As the UK's central bank, the BoE sets interest rates, manages inflation, and maintains financial stability.

The main tool for influencing GBP is the base interest rate, which affects borrowing costs and economic activity overall. Raising rates makes borrowing pricier, slowing consumer spending and curbing inflation. Lowering rates, on the other hand, can boost growth by promoting borrowing and spending. As of September 2024, the Bank of England is keeping interest rates at 5%.

Beyond interest rates, the Bank of England employs quantitative easing (QE) to impact GBP. QE means the BoE buys government bonds and other securities to add liquidity to the economy, spurring lending and investment. More GBP in circulation generally lowers its value against other currencies. For instance, during the pandemic, the Bank of England pumped billions of GBP into the economy.

Is British Pound and Sterling the Same?

Yes, they are the same. The official name of the UK's currency is pound sterling, but it's commonly called the British pound or just sterling.

Why Is the British Pound Called Sterling?

It reportedly comes from sterling silver pennies used in the late 700s.

Why Are Pounds Called Quid?

There's no definitive answer, much like why the dollar is called a 'buck.' Some think it stems from quid pro quo, Latin for 'something for something,' while others link it to Quidhampton, home to a former royal paper mill.

The Bottom Line

To wrap this up, the GBP, or British pound sterling, is the official currency of the United Kingdom. It's the oldest currency still in use as legal tender worldwide. Represented by the pound sign (£), the GBP sees one of the highest trading volumes globally.