It’s beginning to seem as though nothing will be able to stop the British pound from reaching new lows.
The UK’s economic problems are getting worse by the day, with predictions of inflation exceeding 18% next year and the likelihood that households everywhere may experience energy poverty this winter. Traders agree that in order to control pricing pressures, the Bank of England will be forced to plunge the country into a deep recession and result in massive job losses.
As per Bloomberg reports, It has enabled the pound to reach historic lows. The challenges facing the British economy and the future prime minister are highlighted by the currency’s current price of $1.18, which is only 4 US cents above its lowest level since 1985 against the dollar.
“Is there more downside? Yes, absolutely,” said Geoff Yu, senior currency strategist at Bank of New York Mellon Corp. “Even if things improve, sterling can’t return to where it was in the past of $1.40 or $1.45. That’s going to be very hard to achieve.”
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Higher rates should theoretically result in a stronger currency. It’s the opposite, though, for the UK at the moment. Investors are of the opinion that additional aggressive increases in borrowing costs, which are necessary to reduce price growth, would worsen Britain’s economic situation relative to that of the US and the euro area.
When the growth-inflation trade-off is this poor, Kit Juckes, chief currency strategist at Societe Generale SA in London, said that rates “aren’t always going to be enough to support a currency.”
Last month, UK inflation reached a 40-year high of 10.1% year-over-year, and Citigroup Inc. has predicted that it may reach 18% in January. This year, more than half of UK homes run the risk of falling into energy poverty.
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Source: wionews.com
