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The pound is taking a pounding.
The British currency has taken a plunge, sliding against the U.S. dollar to touch an all-time low. It’s a sign of the alarm in financial markets over new Prime Minister Liz Truss’ emergency budget measures unveiled last week aimed at jump-starting the ailing economy.
Investors are spooked by a sweeping package of tax cuts likely to cost tens of billions of pounds in extra government borrowing and amounts to a risky gamble to stave off a looming recession.
But that’s not all. The currency chaos is playing out against the wider backdrop of the dollar’s rally to a two-decade high.
Here’s a look at what it all means:
EVERYDAY IMPACT
Many Britons are struggling amid soaring inflation driven by rising prices for food and energy, in a cost-of-living crisis that’s been dubbed the worst in a generation.
The pound’s slump threatens to make it even worse. One of the most visible ways is by feeding into the energy crisis because oil and natural gas is priced in dollars. The impact is being felt at the pump.
British drivers are paying 5 pounds ($5.45) more on average to fill up their cars since the beginning of the year as the pound has fallen, according to an analysis by motoring association AA. U.K. gas prices would be at least 9 pence per liter cheaper if the pound was still at its mid-February level of $1.35, compared with the now-outdated $1.14 level that the group used last week for its calculation.
“There’s every chance that a falling pound will make life more expensive,» said Sarah Coles, senior personal finance analyst at financial services firm Hargreaves Lansdown. Anything bought from overseas — components, raw materials, supermarket staples and household basics — will be pricier.
“These rising costs will feed into higher prices, and push inflation even higher,» Coles said.
