Pound falls as UK inflation hits 40 year high

Wednesday,   18-May-2022   03:34 PM (IST)

The pound fell against the dollar on Wednesday after data showed British inflation rising to 9%, the highest level in 40 years. Currently, sterling was at $1.2411. The drop reverses most of the gains made on Tuesday when the pound touched its highest level since May 5. Strong labour market data had boosted expectations that the Bank of England would have to further increase interest rates, but the latest inflation numbers are fuelling fears that the threat of recession may temper how far the central bank can go. Consumer price inflation hit 9% in April, making Britain’s inflation rate the highest of Europe’s five biggest economies and almost certainly the Group of Seven countries, with Canada and Japan yet to report figures for April. Neither are likely to match Britain’s price growth. The fact that the U.S. Federal Reserve is expected to act more aggressively on its interest rate hikes is also making the dollar more attractive, Streeter said, further adding to the pound’s weakness as traders flee riskier assets. Against the euro, the pound was up 0.7% at 84.08 pence. British foreign secretary Liz Truss said on Tuesday she intended to introduce legislation in the coming weeks to make changes to the Northern Ireland protocol, which was part of the Brexit divorce deal.