The pound plunged to its lowest level against the dollar since 1985 on Wednesday as investors fled British assets amid a bleak economic outlook and a surging dollar.
The value of the pound sterling fell to 1.135 dollars, its lowest level in 37 years. The drop came after data showed a 1.6% drop in retail sales in August, which some experts said indicates a “deterioration of the consumer situation in the United Kingdom.”
Escalating inflation, which is currently at the highest level of any G-7 country, the impending recession and worries about tax cuts were the factors that pushed the pound sterling on the downslope as experts now believe increased government spending under a new administration would add to price pressures.
The pound has lost more than 15% of its value against the dollar since the start of the year, which poses additional problems for the Bank of England, as it increases the cost of imports and can cause more imported inflation important.
On concerns about economic growth, anticipation of further rate hikes and continued volatility in energy markets, European stock markets were down on Friday.
All sectors were down, and the Stoxx 600 index for all of Europe fell 1%. The German DAX fell by 1.7%, the CAC 40 by 1.8% and the British FTSE 100 remained unchanged.
Speaking on the current state of the pound over the past week, Jan von Gerich, chief analyst at Nordea, said: “For now, the dynamic is very negative. I would expect the moves to have been so violent that the Bank of England will not like it and may be more hawkish.”
“There could be a recovery in the pound, but I wouldn’t want to catch a falling knife just yet“, he added.
The biggest losers in the trade as European stocks fall are German energy firm Uniper and Britain’s Royal Mail. Royal Mail fell 10% as postal workers are set to stage two pay strikes over the next two weeks.
The last time the value of the pound fell to $1.14 was briefly in March 2020 and after the Brexit outcome of 2016. The $1.1407 level had not been seen since 1985, under Margaret Thatcher’s government.
The pound sterling hit an all-time low of $1.0545 in March 1985, shortly before the G7 countries adopted the infamous “Plaza Agreementto control the Reagan-era super dollar.