Sterling’s slide against the dollar to a rate last seen in 1985 has sparked concerns that the plunge could represent the start of a dramatic UK economic downturn.
Some have said it could trigger a collapse in confidence in British assets and a balance of payments crisis.
Fund managers, analysts and former policymakers say such a scenario is unlikely, but they suspect the pound will need to become cheaper before investors buy the currency again.
The currency fell to as low as $1.1407 on Wednesday, as investors took a dim view of the economic outlook under new British Prime Minister Liz Truss.
On Thursday, Ms Truss is due to unveil a £100 billion ($114.8bn) package to cap consumer energy bills for homes and businesses, funded by a massive increase in government borrowing.
In an interview with Sky News, the new levelling-up secretary, Simon Clarke, dismissed the idea that the proposals prompted the plunge in the pound.
“We all obviously would never want to find ourselves in this situation,” he said. “And there is no question that it is the latest in a series of quite extraordinary interventions that the government has had to make to support families, which obviously reflects our determination to do the right thing for the British people.
“But let’s be clear, if we fail to act. If we don’t protect the economy against the shock of the size and scale we are talking about then there is going to be enormous economic damage in any event.”
He said the hardship caused by the proposed rise in the energy price cap in October and beyond would be “enormous”.
The government was already hearing from businesses about their inability to pay.
“And so we could have anticipated I think a huge amount of damage to the economy had this rise gone ahead unchecked,” he said.
“So you are balancing, frankly, two very challenging things. In these circumstances markets will respect that this is the most sensible thing to do.”
Ms Truss is under scrutiny as she gets ready to cut taxes and raise spending in a gamble that loosening the fiscal purse strings — at a time of double-digit inflation — will boost economic growth.
“The market has moved very far and very fast in the last couple of weeks, in the face of what is a relatively bleak economic outlook. That means there will be a recession but it will be deeper in the UK,” said Charles Diebel, head of fixed income strategy at Mediolanum Asset Management, which is betting against the pound.
Britain faces slower economic growth and more persistent inflation than any other major economy next year, the International Monetary Fund forecasts, and Goldman Sachs expects the UK economy to contract by 0.6 per cent in 2023.
“The currency is cheap but probably needs to be cheaper,” Mr Diebel said.
Several economists including top economist Mohamed El-Erian forecast the pound will hit $1.10 soon, implying a further 4 per cent fall from current levels.
Capital Economics believes sterling could test its all-time low of near $1.05, plumbed in March 1985, just before G7 powers acted to rein in the “superdollar” of the Reagan era, in the so-called “Plaza Accord”.
Yet the rush to dump British assets has been driven by international developments too, including soaring gas prices and global growth worries that have driven investors to seek shelter in the dollar. The euro and yen have also hit multi-decade lows.
Classification of skills
A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation.
A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.
The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000.
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Results
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THE BIO
Favourite book: ‘Purpose Driven Life’ by Rick Warren
Favourite travel destination: Switzerland
Hobbies: Travelling and following motivational speeches and speakers
Favourite place in UAE: Dubai Museum
Wicked: For Good
Director: Jon M Chu
Starring: Ariana Grande, Cynthia Erivo, Jonathan Bailey, Jeff Goldblum, Michelle Yeoh, Ethan Slater
Rating: 4/5
FFP EXPLAINED
What is Financial Fair Play?
Introduced in 2011 by Uefa, European football’s governing body, it demands that clubs live within their means. Chiefly, spend within their income and not make substantial losses.
What the rules dictate?
The second phase of its implementation limits losses to €30 million (Dh136m) over three seasons. Extra expenditure is permitted for investment in sustainable areas (youth academies, stadium development, etc). Money provided by owners is not viewed as income. Revenue from “related parties” to those owners is assessed by Uefa's “financial control body” to be sure it is a fair value, or in line with market prices.
What are the penalties?
There are a number of punishments, including fines, a loss of prize money or having to reduce squad size for European competition – as happened to PSG in 2014. There is even the threat of a competition ban, which could in theory lead to PSG’s suspension from the Uefa Champions League.
UAE currency: the story behind the money in your pockets
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Company%20profile
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Secret Nation: The Hidden Armenians of Turkey
Avedis Hadjian, (IB Tauris)
Various Artists
Habibi Funk: An Eclectic Selection Of Music From The Arab World (Habibi Funk)
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
World record transfers
1. Kylian Mbappe - to Real Madrid in 2017/18 - €180 million (Dh770.4m - if a deal goes through)
2. Paul Pogba - to Manchester United in 2016/17 - €105m
3. Gareth Bale - to Real Madrid in 2013/14 - €101m
4. Cristiano Ronaldo - to Real Madrid in 2009/10 - €94m
5. Gonzalo Higuain - to Juventus in 2016/17 - €90m
6. Neymar - to Barcelona in 2013/14 - €88.2m
7. Romelu Lukaku - to Manchester United in 2017/18 - €84.7m
8. Luis Suarez - to Barcelona in 2014/15 - €81.72m
9. Angel di Maria - to Manchester United in 2014/15 - €75m
10. James Rodriguez - to Real Madrid in 2014/15 - €75m
