The pound has come under increased pressure as “stagflation” fears loom across the economy amid a supply chain crisis and rising energy prices.
The British pound fell below $ 1.35 to hit a fresh eight-month low against the US dollar early Wednesday before extending its losses to a level not seen since late 2020.
It was trading at $ 1.3415 in night trading.
“Stagflation” describes a period in which an economy experiences stagnant growth and high inflation at the same time.
The pound has weakened from more than $ 1.37 since the beginning of the week, during which the panic buying scenes at the gas pumps became the latest manifestation of the British economy. supply chain crisis, focused on the lack of heavy vehicle drivers.
The British pound had been trading above $ 1.42 in June.
It comes at a time when high oil and natural gas prices caused by a confluence of global factors appears to hit consumers just as the economy’s recovery from the COVID-19 crisis weakens.
The Governor of the Bank of England (BoE), Andrew Bailey, warned earlier this week that the recovery was entering “difficult terrain”.
New debt figures from the BoE released on Wednesday showed a relatively small increase of £ 351 million in consumer credit, covering the likes of credit cards, personal loans and car financing, in August.
The level of such loans overall remains 2.4% lower than a year earlier, suggesting that households remained cautious about splashes over the summer.
Meanwhile, data from the British Retail Consortium (BRC) showed a streak of more than two years in which store prices have been falling and it looks set to end in the coming months as inflationary pressures take their toll.
He noted that higher transportation costs, labor shortages, Brexit bureaucracy and increases in raw material prices are beginning to affect consumers.
General store prices this month were 0.5% lower than last year, although food was up 0.1%, the first increase in six months, and some goods, such as DIY and garden products, recorded the highest level of inflation since 2018.
Furthermore, a Scottish Widows survey found that UK households had become more pessimistic over the past three months as the post-closing recovery began to slow and prices rose.
The darkening outlook poses a dilemma for the Bank of England over whether it can raise interest rates to avoid the threat of inflation if that risks slowing growth further.
At the same time, the US Federal Reserve. recently pointed out It’s closer to pulling the trigger away from the multi-billion dollar, ultra-low-rate bond buying policies that have dampened the economy during the pandemic.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Fear of stagflation haunts financial markets with the fuel and supply chain crisis threatening to slow recovery as companies grapple with the ogre of rising prices.
“Concern that the UK will not quickly break free from constraints caused by driver shortages and commodity and commodity bottlenecks has seen the pound struggle to rebound from its slide against the dollar.”