The British pound slumped to a 37-year low on Friday after new data showed that shoppers are pulling back spending as inflation squeezes household budgets, underscoring fears that the economy may already be shrinking
The currency fell below $1.14, its lowest since 1985, after the Office for National Statistics said that retail sales in August dropped 1.6% month-over-month, the biggest decline since December 2021 and significantly worse than economists had expected. “I think the UK is in recession already,” said Michael Hewson, chief market analyst at CMC Markets UK.
A plan by Prime Minister Liz Truss to subsidize energy bills for households and businesses could ease the pain this winter, but may not be enough to restore growth. The Bank of England forecast a lingering recession before her plan was announced. Investors have also been unsettled by indications that the government will pay for its energy program, which could cost as much as £150 billion , by sharply increasing the UK national debt.
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