The pound has fallen to a two-year low towards the greenback as fears develop for the way forward for Britain’s financial system amid surging costs and falling shopper confidence.
On Tuesday, sterling fell beneath $1.19 for the primary time since March 2020, when the federal government introduced the primary Covid lockdown.
It got here as Boris Johnson’s authorities lurched additional into chaos following the resignation of senior figures together with Rishi Sunak, the chancellor. In a parting shot on the prime minister, Mr Sunak mentioned a part of his motive for quitting was that the federal government wanted to be trustworthy that the trail to a greater future was “not an easy one”.
“The pound was already sliding before the UK Government was plunged into chaos, yet the resignations of Rishi Sunak and Sajid Javid have simply added to the currency’s woes as it shows a cabinet in disarray,” mentioned Russ Mould, funding director at AJ Bell.
“Recession fears have weighed on the pound in recent months and the currency has now hit a two-year low against the dollar as inflation continues to hurt consumers and businesses.
“Political chaos adds another layer of uncertainty on top of the recession fears, so it is no wonder the pound is sinking.
Consumer price inflation hit 9.1 per cent in May and is expected to surge to 11 per cent later this year, meaning households face big falls in living standards as wages fail to keep up with rising costs for gas, electricity and food.
A weak pound will continue to push prices higher as the UK is dependent on imports for much of its energy and food.
Consumer confidence has hit its lowest level on record according to a long-running survey by Growth from Knowledge (GfK), while car sales fell to their lowest level for any June since 1996. The construction industry is also slowing down, new industry figures show.
The Bank of England said on Tuesday that the prospects for the UK economy had “deteriorated materially” since Russia invaded Ukraine.
Sterling’s fall against the dollar has also been driven by a strengthening of the US currency. The dollar has been buoyed by sharp rises to interest rates by the US central bank, which increase the returns that investors can expect.
The Federal Reserve hiked its main interest rate by 0.75 percentatge points at its latest meeting in a bid to tame inflation.
The Bank of England has acted more cautiously, raising rates by 0.25 per cent last month to 1.25 per cent.
Policymakers have indicated that further hikes are on the way, with deputy governor Sir John Cunliffe saying on Wednesday that the Bank would do “whatever is necessary” to deliver inflation underneath management.
While greater rates of interest might assist to cut back the upward strain on costs, it’ll additionally minimize into family budgets additional by making borrowing dearer.
Source: www.impartial.co.uk