The sinking pound is adding fuel to the fire of irrevocable British prices

The pound is currently declining by less than 3% against a trade-weighted basket of all currencies. If sterling experiences similar declines against all currencies, it will add two percentage points to inflation in the coming years. Mr Dales said the pound was likely to fall to $ 1.22 from the greenback by the end of 2022.

Currency traders warned that sterling could face even more pressure next week when the Bank of England decided whether to raise interest rates from 0.75 percent to 1 percent, the highest level since the financial crisis.

Traders and economists expect the Bank’s interest rates to raise borrowing costs again to curb growing price pressures. However, sterling could come under pressure if the Monetary Policy Committee sends a grim message, signaling a more restrained approach to raising interest rates.

Morgan Stanley economist Bruna Skarica said next Thursday’s meeting “should be crucial in setting the tone for the Bank of England for the rest of the year”.

She said: “If the Bank of England focuses again on the forthcoming slowdown and softer medium-term inflation forecasts at market implicit rates, this will confirm our view that it will not hesitate to halt its upturn cycle as data for growth are deteriorating further. “

Philip Shaw of Investec said the recent declines in sterling “are unlikely to sit comfortably with the MPC.”

“First, a weaker currency will increase inflation,” he said. “Second, the committee may harbor concerns about further sell-off of the currency if markets see the BoE as ignoring inflation.

Robert Wood, an economist at Bank of America, said the weakness in sterling could add another 0.1 percentage point to inflation over the next two to three years.

But he warned that the MPC faces a communication challenge if price pressures fall short of inflation below the target in the coming years.

“The big question the bank has to answer, we think, is whether they think a recession is needed this year to bring inflation back to the right horizon,” he said in a note published last week.