Sterling’s slide against the dollar to a rate last seen in 1985 has sparked concerns that the plunge could represent the start of a dramatic UK economic downturn.
Some have said it could trigger a collapse in confidence in British assets and a balance of payments crisis.
Fund managers, analysts and former policymakers say such a scenario is unlikely, but they suspect the pound will need to become cheaper before investors buy the currency again.
The currency fell to as low as $1.1407 on Wednesday, as investors took a dim view of the economic outlook under new British Prime Minister Liz Truss.
On Thursday, Ms Truss is due to unveil a £100 billion ($114.8bn) package to cap consumer energy bills for homes and businesses, funded by a massive increase in government borrowing.
In an interview with Sky News, the new levelling-up secretary, Simon Clarke, dismissed the idea that the proposals prompted the plunge in the pound.
“We all obviously would never want to find ourselves in this situation,” he said. “And there is no question that it is the latest in a series of quite extraordinary interventions that the government has had to make to support families, which obviously reflects our determination to do the right thing for the British people.
“But let’s be clear, if we fail to act. If we don’t protect the economy against the shock of the size and scale we are talking about then there is going to be enormous economic damage in any event.”
He said the hardship caused by the proposed rise in the energy price cap in October and beyond would be “enormous”.
The government was already hearing from businesses about their inability to pay.
“And so we could have anticipated I think a huge amount of damage to the economy had this rise gone ahead unchecked,” he said.
“So you are balancing, frankly, two very challenging things. In these circumstances markets will respect that this is the most sensible thing to do.”
Ms Truss is under scrutiny as she gets ready to cut taxes and raise spending in a gamble that loosening the fiscal purse strings — at a time of double-digit inflation — will boost economic growth.
“The market has moved very far and very fast in the last couple of weeks, in the face of what is a relatively bleak economic outlook. That means there will be a recession but it will be deeper in the UK,” said Charles Diebel, head of fixed income strategy at Mediolanum Asset Management, which is betting against the pound.
Britain faces slower economic growth and more persistent inflation than any other major economy next year, the International Monetary Fund forecasts, and Goldman Sachs expects the UK economy to contract by 0.6 per cent in 2023.
“The currency is cheap but probably needs to be cheaper,” Mr Diebel said.
Several economists including top economist Mohamed El-Erian forecast the pound will hit $1.10 soon, implying a further 4 per cent fall from current levels.
Capital Economics believes sterling could test its all-time low of near $1.05, plumbed in March 1985, just before G7 powers acted to rein in the “superdollar” of the Reagan era, in the so-called “Plaza Accord”.
Yet the rush to dump British assets has been driven by international developments too, including soaring gas prices and global growth worries that have driven investors to seek shelter in the dollar. The euro and yen have also hit multi-decade lows.
A timeline of the Historical Dictionary of the Arabic Language
- 2018: Formal work begins
- November 2021: First 17 volumes launched
- November 2022: Additional 19 volumes released
- October 2023: Another 31 volumes released
- November 2024: All 127 volumes completed
Tips to stay safe during hot weather
- Stay hydrated: Drink plenty of fluids, especially water. Avoid alcohol and caffeine, which can increase dehydration.
- Seek cool environments: Use air conditioning, fans, or visit community spaces with climate control.
- Limit outdoor activities: Avoid strenuous activity during peak heat. If outside, seek shade and wear a wide-brimmed hat.
- Dress appropriately: Wear lightweight, loose and light-coloured clothing to facilitate heat loss.
- Check on vulnerable people: Regularly check in on elderly neighbours, young children and those with health conditions.
- Home adaptations: Use blinds or curtains to block sunlight, avoid using ovens or stoves, and ventilate living spaces during cooler hours.
- Recognise heat illness: Learn the signs of heat exhaustion and heat stroke (dizziness, confusion, rapid pulse, nausea), and seek medical attention if symptoms occur.
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
UAE and Russia in numbers
UAE-Russia ties stretch back 48 years
Trade between the UAE and Russia reached Dh12.5 bn in 2018
More than 3,000 Russian companies are registered in the UAE
Around 40,000 Russians live in the UAE
The number of Russian tourists travelling to the UAE will increase to 12 percent to reach 1.6 million in 2023
UAE currency: the story behind the money in your pockets
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Usain Bolt's World Championships record
2007 Osaka
200m Silver
4x100m relay Silver
2009 Berlin
100m Gold
200m Gold
4x100m relay Gold
2011 Daegu
100m Disqualified in final for false start
200m Gold
4x100m relay Gold
2013 Moscow
100m Gold
200m Gold
4x100m relay Gold
2015 Beijing
100m Gold
200m Gold
4x100m relay Gold
Infiniti QX80 specs
Engine: twin-turbocharged 3.5-liter V6
Power: 450hp
Torque: 700Nm
Price: From Dh450,000, Autograph model from Dh510,000
Available: Now
Roll of honour 2019-2020
Dubai Rugby Sevens
Winners: Dubai Hurricanes
Runners up: Bahrain
West Asia Premiership
Winners: Bahrain
Runners up: UAE Premiership
UAE Premiership
}Winners: Dubai Exiles
Runners up: Dubai Hurricanes
UAE Division One
Winners: Abu Dhabi Saracens
Runners up: Dubai Hurricanes II
UAE Division Two
Winners: Barrelhouse
Runners up: RAK Rugby
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
'Young girls thinking of big ideas'
Words come easy for aspiring writer Afra Al Muhairb. The business side of books, on the other hand, is entirely foreign to the 16-year-old Emirati. So, she followed her father’s advice and enroled in the Abu Dhabi Education Council’s summer entrepreneurship course at Abu Dhabi University hoping to pick up a few new skills.
“Most of us have this dream of opening a business,” said Afra, referring to her peers are “young girls thinking of big ideas.”
In the three-week class, pupils are challenged to come up with a business and develop an operational and marketing plan to support their idea. But, the learning goes far beyond sales and branding, said teacher Sonia Elhaj.
“It’s not only about starting up a business, it’s all the meta skills that goes with it -- building self confidence, communication,” said Ms Elhaj. “It’s a way to coach them and to harness ideas and to allow them to be creative. They are really hungry to do this and be heard. They are so happy to be actually doing something, to be engaged in creating something new, not only sitting and listening and getting new information and new knowledge. Now they are applying that knowledge.”
Afra’s team decided to focus their business idea on a restaurant modelled after the Leaning Tower of Pisa. Each level would have a different international cuisine and all the meat would be halal. The pupils thought of this after discussing a common problem they face when travelling abroad.
“Sometimes we find the struggle of finding halal food, so we just eat fish and cheese, so it’s hard for us to spend 20 days with fish and cheese,” said Afra. “So we made this tower so every person who comes – from Africa, from America – they will find the right food to eat.”
rpennington@thenational.ae
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
