Exchange Rate in the UK in 2022
The value of the pound typically increases when the UK economy grows. The pound's value increased as the British economy recovered from the pandemic last year. UK politics significantly influences the British pound. Brexit has made this particularly clear in recent years. Despite the UK exiting the European Union (EU) on December 31, 2020, Brexit issues are still evident in 2022. The Northern Ireland border has been the central focus of the problems. Brexit-related problems might last into 2022. The pound frequently decreases as tensions between the UK and EU increase and vice versa.
GBP and USD
One of the world's oldest and most popular currency pairs is the pound-dollar. The US dollar (USD) greatly impacts the British pound (GBP). The GBP is relatively weaker when the USD strengthens and vice versa. Since 2022, the British pound (GBP) has lost over 10% of its value against the US dollar (USD). The outlook for the pound is getting worse due to UK inflation being high and still growing, the cost-of-living problem setting in, and declining growth.
The GBP/USD exchange rate has progressively declined since rising to a five-year high of $1.4245 in May 2021. The pound has been declining as the UK economy's outlook shrinks and inflation increases due to sanctions against Russia, which have driven up energy prices, and the effects of quantitative easing during the Covid era.
The British economy shrank by 0.1% in March and another 0.3% in April. According to data from the June Purchasing Managers' Index (PMI), the UK economy quickly lost momentum. The Bank of England (BoE) will be concerned by this development as it suggests that inflation may soon spiral out of control. According to PMI data, high inflation was harming new orders, and businesses were paying higher wages while passing the costs onto customers. Consumer Price Index (CPI) inflation increased to 9.4% year over year (YoY) in June. This represented the largest price increase in 40 years and was slightly higher than the 9.1% in May. The Bank of England is under more pressure to raise interest rates due to rising inflation. The central bank increased interest rates by 25 basis points in June (bps). Rates were increased for the fifth consecutive time in a row.
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