According to seasoned analysts, the pound has dropped below USD 1.19 for the first time since March 2020, when the COVID-19 lockdown was first imposed in the U.K., owing primarily to market dilemmas about the country’s future economic growth.
While the pound rose 0.5% against the feeble Euro to 85.46 pence, it was trading at USD 1.189 in London on Wednesday, July 6th, due to fears about soaring energy prices. The predictions assert that it could fall even further due to skyrocketing inflation and the present economic instability.
It is worth noting that a dwindling pound may imply that imports such as food will become costlier. Petrol prices would ascend as the crude oil is traded in dollars and given how the pound is performing against the dollar, crude oil prices would continue to climb.
Besides this, U.K. vacationers traveling abroad will receive less value for their money. On the contrary, British products and services sold overseas may draw more attention as they become quite reasonably priced for foreign customers.
Interestingly, the U.S. dollar's strong performance could be attributed to mounting interest rates in the nation as well as investors viewing it as a trusted resource.
Even though the Bank of England has fostered interest rates five times this cycle, the pound underperforms due to Downing Street remaining cautious about the country's financial future.
Another reason could be a lack of UK labor, which hasn’t been restored to pre-pandemic scales because a large portion of the labor force left during the coronavirus outbreak. This, combined with Brexit, hasn't upheld their market returns.
As such, the Westminster authorities' escalation of the Northern Ireland protocol has investors displeased about the spiraling conflict over the country's post-Brexit trading provisions, which is likely to spark a retaliatory tariff.
Consequently, there is social unrest and people are apprehensive about the impending recession in the United States and Europe, as well as the already existing upheaval of heightened living costs in the U.K.