'Ukraine war, energy crises, looming recession' - Why British pound depreciates
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'Ukraine war, energy crises, looming recession' - Why British pound depreciates

Sept. 9, 2022

'Ukraine war, energy crises, looming recession' - Why British pound depreciates

Admin By Adewale Adewale
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The British pound has dropped to a 37-year low against the US dollar as the United Kingdom grapples with a series of overlapping economic problems with no easy solutions.

A looming recession, energy crisis and rising inflation has sent the pound sinking over the past year.

Governor, Bank of England Andrew Bailey also warned that little could be done to stop the UK falling into a recession this year as the war in Ukraine continued.

It tumbled another half percentage point to a low of $1.1406 Wednesday, sinking below its March 2020 low when the Covid pandemic erupted onto the global stage.

The drop took the currency to its lowest level against the US dollar since 1985, when Margaret Thatcher was prime minister.

The new British Prime Minister, Liz Truss is already staring down the barrel of a potential currency crisis.

Truss is reportedly considering 150 billion Pounds commitment to cap surging energy prices that threaten to push millions of Britons in poverty this winter as the cost of living surges.

Also, analysts at Financial Times said the United Kingdom borrowed heavily during the pandemic, but investors may soon turn up their noses at lending the country more money if it tumbles into a so-called stagflation cycle in which the economy shrinks yet prices continue to surge.

That could encourage traders to keep ditching the pound, making it harder for the import-dependent economy to continue to pay its way and further driving up inflation. That could force the Bank of England to raise rates more aggressively, which in turn would hurt the country's economy.

The CEO and founder deVere Group, independent financial advisory, asset management and fintech organisations, Nigel Green, said the Pounds Sterling has been one of this year's worst-performing major currencies in the world.

“British Pound Sterling has been one of this year’s worst-performing major currencies, down more than 10 per cent against the dollar, amid concerns about a severe economic slowdown, red-hot inflation”

He noted that a strong and stable leadership is likely to get the pound back on track to a large extent. "Currencies typically like strong, unifying leaders.”

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