On September 16, 2022, the British pound fell to a 37-year low as new data revealed that consumers are cutting down on their spending as inflation strains household budgets, highlighting concerns that the economy may already be contracting. Notably, the inflation rate increased significantly this year 2022 when compared to last year 2021, according to GlobalData.
After the Office for National Statistics reported that retail sales in August declined 1.6% month-over-month, the worst drop since December 2021 and substantially worse than economists had anticipated, the currency sank below $1.14, its lowest level since 1985. A succession of dismal economic reports as well as the sharp increase in the value of the US dollar—a safe-haven asset that attracts investment during uncertain times—have all hurt the pound. Apparently, the exchange rate of UK currency significantly increased this year 2022 when compared to last year 2021, according to GlobalData.
With predictions of another significant rate hike by the Federal Reserve next week, the dollar is currently close to reaching its best level in around two decades against a basket of major currencies. However, the British pound is suffering more than most currencies because of the country's economic outlook. Compared to the dollar, it has lost more than 15% of its value this year, as opposed to the euro's 12% loss. Prime Minister Liz Truss' proposal to reduce energy costs for individuals and businesses may help this winter, but it might not be enough to spur growth. Even before her proposal was made public, the Bank of England predicted a persistent recession.
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