Just after 2pm on Wednesday, sterling fell to $1.1407, according to Refinitiv data – its lowest since 1985. The pound has lost more than 15% against the dollar so far this year, hurt by both the dollar’s strength and a bleak economic outlook for the UK. Inflation in the UK was already the highest of the G7 economies and analysts have been predicting a recession for months. But now Liz Truss has replaced Boris Johnson as Prime Minister. Ms Truss has pledged to help people cope with skyrocketing energy bills, but has also made it clear she wants to cut taxes. She has also ruled out extending a windfall tax on oil and gas companies, leaving little choice but to increase government borrowing to fund her pledge. The pound’s terrible performance will also make the Bank of England more likely to raise interest rates when its monetary policy committee meets next week. The bank is raising interest rates in a bid to tame inflation – which hit 10.1% in July, according to the latest available data – but the struggling dollar will raise the cost of imports, fueling inflation. Sterling’s all-time low against the dollar was $1.0545 in March 1985, shortly before the Plaza Accord, when steps were taken by some of the world’s largest economies to rein in the Reagan-era superdollar. Meanwhile on Wednesday, the pound also fell almost 1% against the euro to 86.83, although it has performed better against the single currency than against the US dollar over the course of the year.
