Leading economists have predicted that Britain's pound is on course for near parity with the US dollar as inflation and soaring energy prices push the country to the brink of recession.
Sterling has weakened significantly since the start of the year, dropping more than 17 per cent since January to reach its current level. In late trading on Thursday, the pound was down as far as $1.1499, or an on the day loss of more than one per cent.
But some experts are forecasting that the pound could fall as low as $1.05 and then be vulnerable to breaching the 1:1 level by the middle of next year as energy bills more than triple and eat into household spending.
What's causing the pound's weakness?
According to Capital Economics, the continuing energy crunch, largely caused by the war in Ukraine, will tip Britain into a recession by next year.
Paul Dales, chief UK economist at the consultancy, said he believed the markets were already expecting a lengthy recession in Britain, but said the "US may avoid one".
“If anything, the recent surge in UK wholesale gas prices suggests that the risks are tilted towards a deeper and longer recession in the UK,” he said.
Capital Economics predicts that the pound could hit $1.05 by the middle of next year, surpassing the record low of $1.07 reached in 1985.
Last month, regulator Ofgem confirmed an 80 per cent rise in the energy price cap, which will mean the average household’s yearly bill will increase from £1,971 to £3,549 from October.
The rising energy bills are likely to result in a major drop in household spending, leading to fears of business closures and higher unemployment.
Steven Bell, Chief Economist (EMEA) at Columbia Threadneedle Investments said there was an "extraordinary divergence in energy prices" which was weighing on the pound.
The price of natural gas is now more than eight times higher in Europe and the UK than in the US, he said.
He predicts that the "mighty dollar could get even mightier" due to rate rises by the US Federal Reserve.
Sterling's loss is dollar's gain
Britain is already grappling with four-decade high inflation of more than 10 per cent, but Goldman Sachs recently outlined a worst-case scenario of 22 per cent.
The cost-of-living crisis has forced the Bank of England to raise interest rates to 1.75 per cent — but markets are betting that rate could be more than double by 2023.
Meanwhile, US Federal Reserve has already raised its base rate to between 2.25 to 2.50 per cent as it turns increasingly hawkish in an attempt to tame runaway inflation.
As a result, investors have shunned the euro and sterling and poured money into the dollar due to its safe-haven status and renewed confidence over the US's near-term economic outlook.
A weakened pound is also likely to add to inflationary pressures in Britain as imports become more expensive.
"It's not just sterling weakness — it's a dollar strength story," said Michael Hewson, chief markets analyst at CMC Markets. "Sterling has its problems, but they are not unique to it — high inflation, surging energy prices and falling disposable incomes."
British consumer confidence fell last month by the most since the onset of the Covid-19 pandemic and reached its lowest level since November 2020, a Bank of America survey showed on Wednesday.
"Crucially for the economic outlook, consumers are more pessimistic about their personal finances than in 2020, unemployment expectations are rising fast, and spending dropping," said BofA economist Robert Wood.
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BIGGEST CYBER SECURITY INCIDENTS IN RECENT TIMES
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Match info
Bournemouth 1 (King 45 1')
Arsenal 2 (Lerma 30' og, Aubameyang 67')
Man of the Match: Sead Kolasinac (Arsenal)
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- Canada and Mexico are significant energy suppliers to the US, providing the majority of oil and natural gas imports
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Favourite author: Malcom Gladwell
Favourite travel destination: "Antigua in the Caribbean because I have emotional attachment to it. It is where I got married."
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West Asia rugby, season 2017/18 - Roll of Honour
Western Clubs Champions League - Winners: Abu Dhabi Harlequins; Runners up: Bahrain
Dubai Rugby Sevens - Winners: Dubai Exiles; Runners up: Jebel Ali Dragons
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UAE Premiership Cup - Winners: Abu Dhabi Harlequins; Runners up: Dubai Exiles
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Stage three:
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4. Tadej Pogacar (SLO) UAE-Team Emirates, at 18s
5. Joao Almeida (POR) UAE-Team Emirates, at 22s
6. Mikkel Bjerg (DEN) UAE-Team Emirates, at 24s
General Classification:
1. Stefan Bissegger (SUI) EF Education-EasyPost, in 9-13-02
2. Filippo Ganna (ITA) Ineos Grenadiers, at 7s
3. Jasper Philipsen (BEL) Alpecin Fenix, at 12s
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Date started: 2012
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Based: Dubai, UAE
Sector: HealthTech / MedTech
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Killing of Qassem Suleimani
Killing of Qassem Suleimani
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
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TOUCH RULES
Touch is derived from rugby league. Teams consist of up to 14 players with a maximum of six on the field at any time.
Teams can make as many substitutions as they want during the 40 minute matches.
Similar to rugby league, the attacking team has six attempts - or touches - before possession changes over.
A touch is any contact between the player with the ball and a defender, and must be with minimum force.
After a touch the player performs a “roll-ball” - similar to the play-the-ball in league - stepping over or rolling the ball between the feet.
At the roll-ball, the defenders have to retreat a minimum of five metres.
A touchdown is scored when an attacking player places the ball on or over the score-line.
UAE currency: the story behind the money in your pockets
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The five pillars of Islam
Married Malala
Malala Yousafzai is enjoying married life, her father said.
The 24-year-old married Pakistan cricket executive Asser Malik last year in a small ceremony in the UK.
Ziauddin Yousafzai told The National his daughter was ‘very happy’ with her husband.
