Sabtu, 23 April 2022

Pound slumps to its lowest level for more than 18 monthshit - This is Money

The pound slumped to its lowest level for more than 18 months amid signs the economy is faltering in the face of soaring inflation. 

On a worrying day for the Bank of England and Treasury, a flurry of reports showed a slump in retail sales, a collapse in consumer confidence, and a sharp slowdown in private sector activity. 

The triple whammy fuelled fears of a devastating bout of stagflation as living standards are hammered by rising prices and weak economic growth. 

Warning: While households and businesses are being buffeted by rising energy bills and other costs, Chancellor Rishi Sunak has pressed ahead with hikes in taxes

The bleak news, which came amid mounting political pressure on Boris Johnson, sent sterling towards $1.28 against the dollar – its lowest level since September 2020 in the depths of the Covid pandemic. The pound also dipped below €1.19 for the first time since the start of the month. 

While households and businesses are being buffeted by rising energy bills and other costs, Chancellor Rishi Sunak has pressed ahead with hikes in taxes, including National Insurance, despite warnings they could derail the economic recovery from the Covid pandemic. 

Michael Hewson, chief market analyst at CMC Markets UK, described the tax rises as a 'fiscal own goal'. He added: 'It is true that he [Sunak] has taken some measures to alleviate the hit to people's finances but it is very much the fiscal equivalent of tinkering around the edges, and points to a very challenging few months for consumers, exacerbated by tax rises which could, and should, have been postponed.'

In a sign of the mounting pressure on family finances, figures from the Office for National Statistics (ONS) showed a 1.4 per cent slide in the volume of items shoppers bought in March, as households felt the pinch from rising prices. Food store sales fell 1.1 per cent, car fuel sales were down 3.8 per cent as prices shot up, and the proportion of shopping done online slipped to 26 per cent – its lowest since the start of the pandemic. 

Separate figures from polling firm GfK showed the public is gloomier about the economy than in the financial crisis of 2008. GfK said consumer confidence was in 'freefall' with 'little prospect of any economic relief on the horizon'. 

A third report, from S&P Global, showed a sharp slowdown across the services and manufacturing sectors in April. 

The closely watched Purchasing Managers' Index (PMI) – where scores above 50 show growth – fell from 60.9 in March to 57.6 this month. While that was still in positive territory, it was the weakest reading for three months and represented 'a much weaker speed of recovery across the UK economy', according to the report. 

Prices have climbed as Covid blockages around the world, and the war in Ukraine, push up the cost of raw materials and components. Inflation hit 7 per cent in March and is expected to surpass 8 per cent this month – a level not seen since the early 1980s. 

Dean Turner, an economist at the wealth management division of UBS, said: 'The cost-of-living squeeze is hitting economic activity hard.' 

The Bank of England is facing a deepening quandary as it weighs whether to hike interest rates again next month, in an attempt to keep a lid on price rises. It has already lifted rates to 0.75 per cent, from their pandemic low of 0.1 per cent. 

But further hikes run the risk of throwing the economic recovery into reverse, as they encourage businesses and households to save rather than spend. 

Governor Andrew Bailey this week admitted the Bank was walking a 'very tight line' between curbing inflation and tipping the UK into a recession.

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2022-04-22 20:54:45Z
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