Sep 30, 2021 1 min read

Pound plummets to eight-month lows

Economists raise concerns over sterling as supply chain disaster stunts growth.
Pound plummets to eight-month lows
British Pound plummets

Sterling dipped below $1.35 against the US dollar (GBP/USD) for the first time since December last year amid fears that the UK faces a nasty bout of stagflation.

Economists are worried that the UK's recovery is slowing to a halt while prices are still rising – setting the scene for a painful spell of stagflation.

This is considered particularly dangerous for households, who have to deal with rising prices at a time when low growth leads to higher unemployment.

The Bank of England could be forced to raise interest rates to tame inflation despite the slowdown in the economy.

Typically, the pound would rise in response to increased expectations of an early interest rate rise but sterling has continued to slide amid fears the central bank would be acting to control rising prices at a time of weak economic growth rather than due to a strong recovery.

The pound was at one point the best performing G10 currency in 2021, boosted by high expectations for an economic rebound in Britain following the vaccination programme.

That has crumbled under the weight of a shortage of lorry drivers, which has hit supply chains, raising concerns of disruptions and price rises in the run-up to Christmas.

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