The pound plunges on fears that the UK enters a recession
The pound slumps on fears the UK could slip into recession as spiraling inflation forces consumers to tighten their belts
The pound tumbled amid concerns the UK could slip into recession as a result of inflation.
Sterling fell below $1.24 against the US dollar as rising prices fueled fears the UK economy could slow as consumers spend less.
The drop sent the pound back to a two-year low of $1.22 hit last week as the UK said GDP fell in March.
The value of the British pound fell below $1.24 against the US dollar, as the price rally raised fears that the UK economy could start to slow down.
The price increase, which according to the Office for National Statistics hit a 40-year high of 9 percent last month, fell short of analyst predictions.
But it fueled concerns that spending would take a hit and increase pressure on the Bank of England to raise interest rates, which could stifle economic growth.
City forecasters are betting that rates will increase at least four times this year, while others are predicting rates could even triple.
Bank of America analysts had expected interest rates to double from their current level of 1 percent.
Rates forecast by Capital Economics will need to reach 3 percent before inflation returns to the Bank of England’s 2 percent target.
Sterling’s slide erased Tuesday’s gains as a drop in UK unemployment to its lowest level in nearly 50 years boosted recovery optimism.
But gloomy inflation figures dashed hopes of a rebound.
Susannah Streeter, an analyst at Hargreaves Lansdown, said rising wages as companies struggle to attract workers risks making inflation “more entrenched”.
She said the Bank may have to “take a softer-gentler approach” to raising interest rates to reduce the risk of a deeper recession.
Chris Beauchamp of the IG trading platform said the inflation figure “confirms the predicament the [Bank of England] finds himself, and shows that Andrew Bailey was right to be so pessimistic’.
And he added: ‘The [Bank] knows it will have a hard time fighting inflation with an economy so vulnerable to higher rates and a possible recession.’