On Tuesday (14 Jun), the pound fell below $1.21, its lowest level for more than two years. This added further pressure to the Bank of England’s (BoE) Monetary Policy Committee as a weak currency means the UK will effectively be importing inflation, especially on its energy imports.
By Wednesday (15 Jun), the US Federal Reserve (Fed) had increased the pressure with the biggest US interest-rate hike for 28 years – a 0.75% rise in its benchmark interest rate, following a 0.25% rise in March and a 0.5% jump in May.
The pound has already fallen 4.5% against the dollar since late May, but with US inflation racing, more Fed rate hikes are on the way. The BoE’s trade-weighted sterling index, which tracks the pound against a basket of currencies, fell on Monday (13 Jun) to its lowest since January last year.
Previous BoE research has suggested a 10% fall in sterling would raise the level of the consumer price index (CPI) by about 2.7% over three to four years.