The UK pound fell below $1.14 to a 37-year low Friday after a dive in retail sales fueled recession fears. The Bank of England is struggling to keep pace with the Federal Reserve’s tightening efforts. The pound is likely to fall further this year as US interest rate hikes continue, analysts said. Loading Something is loading.
The British pound on Friday sank to its lowest level against the US dollar in nearly four decades after a surprise dive in retail sales triggered a fresh wave of fears about a recession for the UK economy.
Sterling fell as low as $1.1353 in early-morning trading and was down 0.59% at exactly $1.14 at last check. It last broke below $1.14 in 1985, when the dollar was surging due to interest rate rises and Reagan administration tax cuts.
Official UK data released Friday showed purchases of goods dropped 1.6% in August, a significantly larger contraction than the 0.5% fall that economists had predicted.
The data feeds into investor concerns that a sharp fall in consumer spending, a key driver of the UK economy, could push the country’s economy into recession.
A consumer slump could limit the Bank of England’s ability to hike interest rates as it battles to bring double-digit inflation under control, analysts said. Rising rates tend to boost a currency because they offer higher yields to foreign traders, drawing in investment.
“The softening consumption picture serves as a reminder of the challenges faced by the UK economy as the Bank of England hikes rates into a recession,” ING’s global head of markets Chris Turner told Insider.
“As a growth sensitive currency, this is a particularly challenging time for sterling, and indeed we are seeing independent sterling weakness at the moment.”
The Bank of England has struggled to keep pace with the Federal Reserve’s tightening campaign. The US central bank has hiked rates by 75 basis points at consecutive meetings, helping the dollar to rally against other currencies including the pound, the euro, and the Japanese yen.
“The UK consumer base is weaker, meaning it may be deemed too risky to inflate rates at the same pace as our trans-Atlantic friends, which would keep up the downward pressure on the pound,” Hargreaves Lansdown’s lead equity analyst Sophie Lund-Yates said.
The pound’s slide ramps up pressure on the UK central bank ahead of its September meeting.
The BoE’s monetary policy committee was scheduled to meet on September 16. But it delayed that interest rate decision by a week, as the UK was entering a 10-day period of national mourning after the death of Queen Elizabeth II.
“A hawkish turn is needed to help protect” the pound at Thursday’s meeting, Deutsche Bank’s George Saravelos said Friday.
“The exchange rate is vulnerable to extreme dislocation if the Bank of England does not step up its response,” he added.
Read more: From canceled soccer matches to store closures, the UK economy is grinding to a halt as the country mourns the Queen
Deal icon An icon in the shape of a lightning bolt. Keep reading
More: MI Exclusive Markets Currencies Pound Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.