The pound falls to its lowest level in more than 18 months amid signs that the economy is faltering in the face of rising inflation
- Decline in retail sales, collapse in consumer confidence, slowdown in the private sector
- Fear of stagflation, as living standards are affected by rising prices and weak growth
- sterling at its lowest level against the dollar since September 2020
By Lucy White for the Daily Mail
Posted: 21:54, 22 April 2022 | Updated: 23:26, 22 April 2022
The pound fell to its lowest level in more than 18 months amid signs that the economy is faltering in the face of rising inflation.
On a worrying day for the Bank of England and the Treasury, a series of reports showed a drop in retail sales, a collapse in consumer confidence and a sharp slowdown in private sector activity.
The triple blow fuels fears of a devastating bout of stagflation as living standards are hampered by rising prices and weak economic growth.
Warning: As households and businesses are hit by rising energy bills and other costs, Chancellor Rishi Sunak has continued to raise taxes
The grim news, which came amid growing political pressure on Boris Johnson, sent the sterling to $ 1.28 against the dollar – its lowest level since September 2020 in the depths of the Covid pandemic. The pound also fell below 1.19 euros for the first time since the beginning of the month.
As households and businesses are hit by rising energy bills and other costs, Chancellor Rishi Sunak has continued to raise taxes, including national security, despite warnings that they could thwart the economic recovery from the Covid pandemic.
Michael Huson, chief market analyst at CMC Markets UK, described the tax increase as a “fiscal goal”. He added: “It is true that he [Sunak] has taken some measures to alleviate the impact on people’s finances, but this is largely the fiscal equivalent of tinkering around the edges and points to a very challenging few months for consumers, exacerbated by tax increases that could and should have been postponed. ‘
As part of growing pressure on family finances, data from the National Statistics Office (ONS) show a 1.4% drop in the volume of items purchased by buyers in March, as households felt a pinch of rising prices. Grocery sales fell 1.1%, car fuel sales fell 3.8% as prices rose and the share of online shopping fell to 26%, its lowest level since the pandemic .
Some data from the sociological firm GfK show that society is darker for the economy than in the 2008 financial crisis. GfK said consumer confidence is in a “free fall” with “little prospect of economic relief on the horizon”.
A third report from S&P Global showed a sharp slowdown in the services and manufacturing sectors in April.
The carefully monitored Purchasing Managers’ Index (PMI) – where results above 50 show growth – fell from 60.9 in March to 57.6 this month. Although this is still in positive territory, it is the weakest record in three months and represents a “much slower pace of recovery in the UK economy”, according to the report.
Prices have risen as the blockade of Covid around the world and the war in Ukraine have raised the price of raw materials and components. Inflation reached 7% in March and is expected to exceed 8% this month, a level not seen since the early 1980s.
Dean Turner, an economist in UBS’s wealth management department, said: “Reducing the cost of living is hitting economic activity hard.”
The Bank of England is facing increasing difficulties as it decides whether to raise interest rates again next month in an attempt to keep prices rising. It has already raised rates to 0.75% from their pandemic low of 0.1%.
But further rises run the risk of reversing the economic recovery, as they encourage businesses and households to save instead of spend.
Governor Andrew Bailey admitted this week that the bank was on a “very narrow line” between curbing inflation and turning the UK into a recession.
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