The British pound fell to a new low on Wednesday, as fears over inflation, recession and the new Prime Minister’s policies weighed on the currency.
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The currency fell to a low of $1.1403 on Wednesday, hitting a low not seen since Liz Truss’s political hero Margaret Thatcher was in power in 1985.
The currency has been impacted by inflation, fears of a lingering recession, and concerns over Liz Truss’s promises to cut taxes.
In recent weeks, the pound has lost as much as 15% against the soaring dollar amid fears over Britain’s surging inflation and stalling growth.
Soaring dollar, falling pound
Nordea chief analyst Jan von Gerich said, “For now the momentum is very negative. I would expect that the moves have been so violent that the Bank of England won’t like this and may be more hawkish.
“There could be a recovery in sterling but I wouldn’t catch a falling knife for now.”
Liz Truss’s expected energy price freeze could stop inflation in Britain from rising further and reduce the severity of the recession that is forecast to hit the country this winter, economists have said.
UK inflation: 5% by April?
Liz Truss’s £100 billion energy plan ‘could stop inflation rising in Britain’
Economists have said that new Prime Minister Liz Truss’s plan to freeze soaring energy bills could curb inflation in the UK over the coming months.
The price cap is expected to be announced on Thursday and is expected to freeze average energy bills at around £2,500 a year.
Shares in pub owners such as Whitbread (GB:WTB) and Wetherspoons (GB:JDW) rose in early trading on the news.
Economists suggested that the move meant that inflation in Britain will already have peaked.
Elizabeth Martins, UK economist at HSBC said, “Cancelling all or most of the planned October and January prices rises … could be a gamechanger in our view.
“It would mean that, on a mechanical basis, inflation might already have peaked.”
Last month, Goldman Sachs warned that Inflation could hit 22.4% in 2023 if prices for natural gas remain as high as they currently are.
The Bank of England’s Monetary Policy Committee is due to have its next interest rate meeting on September 15.
