British pound plunges to lowest level since 1985

The British pound has fallen to its lowest level against the U.S. dollar since 1985, and investors are braced for further falls. 

The pound fell to $1.1443 before recovering slightly by lunchtime Monday, according to FactSet figures quoted by the Wall Street Journal. 

In recent weeks, the pound has lost as much as 15% against the dollar amid fears over Britain’s surging inflation and stalling growth. 

Analysts expressed fears over incoming Prime Minister Liz Truss’s policies on inflation. 

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London said, “The pound would have lifted higher had Rishi Sunak won as he was more committed to getting a hold on inflation, while Truss is prioritising tax cuts.”

“That’s why you’ve seen such nervousness, particularly in the currency markets, because of worries about what damage this could do to the long-term stability of the UK.”

Fuel on the inflation fire

Rival Rishi Sunak warned that Liz Truss’s policies could “pour fuel on the fire” of inflation.

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. 

Interest rates ‘to rise again’

The National Institute of Economic and Social Research warned last month that the Bank of England would need to raise interest rates to 3% to bring down inflation. 

Another 21 economists suggested that the bank would raise interest rates by 0.25% in September – after a 0.5% raise in August. 

British consumer price inflation rose to 10.1% in July, up from 9.4% in June, in the highest figure since February 1982, according to the Office of National Statistics.