THE pounds has fallen to its lowest level against the dollar since March 2020.
It’s the lowest since the start of the coronavirus pandemic when global markets were plunged into chaos.
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The latest fall has seen £1 worth less than $1.20 for the first time in more than two years.
It’s a blow for anyone buying holiday cash now as you’ll get fewer dollars for each pound you exchange.
The drop was fuelled by growing fears around recession hitting the UK economy.
The Bank of England (BoE) has warned that another rise to interest rates is likely on its way in a bid to tackle soaring inflation.
Huw Pill, chief economist a the central bank said today: “It is essential we bring inflation back down to target, so as to reduce the uncertainties facing households and allow firms to plan for the future.
“Achieving price stability serves as an anchor for wider macroeconomic stability and prosperity.”
BoE deputy governor John Cunliffe said it “will act” to tackle soaring prices.
Speaking on the BBC’s Radio 4 Today, he said: “What we expect is that the cost of living squeeze will actually hit people’s spending and that will start to cool the economy, and we can see signs that the economy is already slowing.”
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The two-year low for the pound comes amid political turmoil and a raft of resignations is piling pressure on Prime Minister Boris Johnson.
Experts say the developments are not a significant factor in the currency moves though.
Susannah Streeter of Hargreaves Lansdown said: “Boris Johnson’s position has appeared precarious for months, so the ministerial desertions haven’t moved the dial that much.
“The Bank of England underlined the deterioration in outlook, and has stressed it will still not hold back in raising interest rates more steeply, should hot inflation show little sign of cooling.”
Inflation hit 9.1% and could rise further still, with experts predicting it could hit 11% by the end of the year.
Inflation is a measure of how much the prices of goods and services have changed over time.
The economy shrank by 03%, the most recent figures suggest, and the country is on the brink of recession, experts say.
GDP is one of the main indicators used to measure the performance of a country’s economy.
When GDP goes up, the economy is generally thought to be doing well.
The Bank of England is set to make a decision on interest rates in August and is expected to hike the base rate again – what would be the sixth rise in a row.
The Bank of England last month increased the base rate by 0.25 percentage points taking it to 1.25%.
Increasing the base rate is one tool the BoE has to tackle inflation – it has a target of 2% for steady economic growth.
Banks often pass higher rates on to borrowers in the form of interest rate rises on mortgages and loans, depending on the type you have.
What a weaker pound means for your finances
A fall in the value of sterling is bad news for holidaymakers, who will find they get less travel money at the Foreign Exchange.
If the value of the pound versus the dollar is $1.5/£1 then for every £100 you change up, you get £150 dollars.
If the pound to dollar exchange rate drops to $1.1/£1 then you’ll only get $110 for £100 holiday spending money.
That means buying anything abroad seems more expensive, and can impact on what you can afford to do on your holiday.
There are some steps you can take to make your travel money go further.
Ordering your cash online in advance will help avoid a last-minute rush at the airport, where the exchange rates are typically much worse.
TravelMoneyMax at moneysavingexpert.com can help you compare rates from different bureaux de change.
Overseas spending cards mean you don’t have to worry about carrying wads of cash too.
These are specific debit and credit cards designed for using abroad, which won’t charge you for each transaction like a standard card will.
But be careful when flashing the plastic as it can make it easier to overspend and ignore your budget.
A weaker pound can also have an impact on the value of your pension or any investments you might have.
This is because if you hold shares in a company based overseas, their value is affected by currency movements.
If you notice a dip in the value of your investments, it’s best not to panic or be tempted to sell.
Negative growth often brings with it falling incomes, job cuts and lower consumption.
A country is in recession when its economy shrinks over a sustained period of time, rather than growing normally.
