According to a report on the Financial Times website on September 16, the exchange rate of the pound against the US dollar fell to its lowest level since 1985 on the 16th.
On the 16th, the exchange rate of the pound against the US dollar once fell by 1% to 1 pound to 1.135 US dollars, the first time in almost 40 years that it broke the 1 pound to 1.14 US dollar mark . Later in New York trading, the pound climbed back above $1.14 a pound, but is still down nearly 16% for the year.
The move speaks to the overall strength of the dollar this year and reflects specific concerns about the state of the UK economy.
On the same day, the pound fell by around 0.5% against the euro to 1.141 euros per pound, and is down around 4% for the year.
This followed a series of weaker-than-expected retail sales data in Britain, fueling fears that the country is about to slide into a prolonged recession.
UK retail sales fell sharply in August as British consumers struggled to cope with rising prices and high energy costs, according to data released by the Office for National Statistics on the 16th. Purchases of goods in the UK fell by 1.6% in the July-August period, reversing a modest increase in the previous month.
The drop was more than the 0.5% contraction forecast by economists interviewed by Reuters, and the biggest drop since the UK lifted hotel virus restrictions in July 2021.
Olivia Cross, economist at Capital Economics, said the data suggested “downward momentum is accelerating” and further reinforced her view that “the UK economy is already in recession”.
Rising prices and the cost of living are affecting sales, the ONS said. Sales have continued to trend downwards since the UK economy reopened in summer 2021.
The figures underline the impact of high inflation on consumers and the wider economy. The UK government this month announced a £150bn energy aid package which is expected to limit the blow from the recent surge in gas prices but will not eliminate the risk of recession.
Victoria Scholler, head of investment at Interactive Investments, said the fall in the pound against the dollar and the euro on the 16th showed that “it has nothing to do with the movement of the dollar … in fact, traders who selling the pound because everyone is worried about the British economy. The outlook and the investment profile is negative.”
In order to fight inflation, the Bank of England is expected to raise interest rates for the seventh consecutive time at its meeting next week. Inflation in the UK is now almost five times its target of 2%.