The pound plummeted against the dollar on Friday morning as new data revealed a bleak economic outlook for the United Kingdom.
Sterling fell 1% versus the dollar to $1.11, after gaining on Thursday in response to the resignation of Prime Minister Liz Truss.
It occurred when official data revealed that government borrowing reached its second-highest September on record.
According to data from the Office for National Statistics, consumers are purchasing less than they did before the coronavirus outbreak (ONS).
The ONS reported that retail sales volumes decreased 1.4% more than anticipated in September, extending their downward trend from August.
The most recent decline of the pound follows a period of tumultuous trading for the currency.
It sank to a historic low against the dollar last month, while government borrowing prices soared following the mini-budget. When the government promised massive tax cuts without specifying how they would be financed, investors were alarmed.
A decline in the value of the pound raises the cost of products and services imported into the United Kingdom from outside. When the pound is weak versus the dollar or euro, for example, it is more expensive for businesses in the United Kingdom to import items such as food, raw materials, and parts.
If corporations opt to pass on price increases to consumers, a weaker pound might also result in greater costs. Changes in the value of the pound affect how far a person’s money will go when traveling abroad.
Consumers purchasing less
“Consumers are currently purchasing less than they did before the epidemic,” Darren Morgan of the Office for National Statistics (ONS), which issued the data, said.
He said, “Retailers told us that September’s decline was due in part to the closure of many businesses for the Queen’s funeral, as well as to persistent price pressures that caused consumers to be cautious with their purchasing.
The cost of the living problem continues to put pressure on household budgets, as prices continue to increase faster than average salaries.
Inflation – the rate at which prices increase in the United Kingdom – jumped to 10.1% last month and is predicted to continue rising.
Mr. Morgan, director of economic statistics at the ONS, stated that all sorts of stores experienced a decline in sales, with food stores being the most affected.
Energy bills
The United Kingdom is borrowing billions of pounds to reduce family and corporate energy price increases.
The Office of National Statistics (ONS) reported that borrowing – the difference between spending and tax income – was £20 billion last month, an increase of £2.2 billion from the previous year.
According to the ONS, it is the second biggest September borrowing since monthly records began in 1993.
According to the report, the figure is lower than in September 2020, at the height of the coronavirus outbreak, when the government was borrowing to pay for programs such as furlough.
The increased borrowing is anticipated
However, economists have warned that government borrowing will continue to increase in the coming months.
The Office For Budget Responsibility (OBR) offers independent projections regarding the impact of government decisions on borrowing and growth, such as tax and expenditure decisions.
It is scheduled to release its most recent prediction on October 31, when the chancellor presents his economic plan outlining the nation’s expenditure objectives.
Carl Emmerson, Deputy Director of the think tank Institute for Fiscal Studies (IFS), stated that government borrowing for the first half of the year has been nearly in line with expectations, but he cautioned that it is likely to increase substantially.
The significant expense of government support for family and commercial energy use only began in earnest this month, so this is a poor indicator of how much borrowing will occur over the whole fiscal year.
The IFS forecasts that this year’s borrowing might reach about £200 billion, “roughly £100 billion more than the OBR projected,” he added.
The senior economist at KPMG UK, Michal Stelmach, meanwhile cautioned that government borrowing will “only worsen from October onwards.
He explained that this was owing to the government’s energy price guarantee for individuals and companies, in addition to the second cost of living payment and pensioner support.
Jeremy Hunt, the Chancellor, stated, “To stabilize markets, I’ve been clear that protecting our public finances will necessitate harsh decisions.
We will do all that is required to reduce debt over the medium term and guarantee that tax dollars are used wisely, putting the public finances on a sustainable course as the economy grows.
