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Pound drops amid weak consumer confidence and high public borrowing

One pound coins
The pound was trading below $1.2 on Friday. Photo: Press Association (PA)

The pound (GBPUSD=X) was trading at a four-week low against the dollar on Friday, dented by a fresh wave of negative sentiment surrounding the British economy.

At the time of writing, sterling was 0.54% down against the US greenback at $1.1870, while it had fallen 0.44% against the euro (GBPEUR=X) at €1.1778.

The recent resurgence of the US dollar continued to add pressure to the pound, which pushed up to its highest levels in a month after the latest weekly jobless claims unexpectedly fell back from the previous week.

The currency came under pressure as UK public borrowing hit £4.9bn ($5.8bn) in July — much larger than the £0.2bn expected by the fiscal watchdog.


This took the total for 2022-2023 so far to £55bn, which is £3bn more than forecasts.

“The pound continues to struggle as GBPUSD dropped below 1.20 and has been unable to recover while the FTSE 100 (^FTSE) is starting the last trading session of the week lower and with an attempt to rebound,” Walid Koudmani, chief market analyst at Financial Brokerage, said.

“The overall situation remains quite difficult in the economy as rising costs and inflationary pressures continue to weigh on consumers, who have continued to lose confidence as they hope the Bank of England and government will manage to combat the underlying factors causing these issues."

Meanwhile, two separate surveys showed on Friday that UK consumer sentiment tumbled to its lowest level on record, while the overall trend for British retail sales continued its downward spiral, with shoppers forced to pay more to buy less as inflation surges.

Sales volumes were 2.3% above their pre-COVID February 2020 levels, but down 3.3% over the past year.

The GfK consumer confidence barometer, which surveys the public about their opinion of the economy, was at its lowest level this month since records began in 1974.

Read more: Train strikes and staff shortages hobble UK transportation sector output

Danni Hewson, AJ Bell financial analyst, said: “The Bank of England faces the unenviable task of trying to get inflation down without inflicting too much pain on businesses and households and the seeming impossibility of this task is raising the spectre of prolonged stagflation — a slowing economy and surging prices.

“That’s reflected in weakness in the pound, which is actually good news for a globally-oriented FTSE 100 as it flatters the relative value of overseas earnings.”

Meanwhile, Michael Hewson of CMC Markets said: “The pound and euro came under pressure, with sterling falling below the 1.2000 level, in a worrying sign that further declines could be on the way, as more and more negativity starts to seep in with respect to the wider economic outlook.”

Watch: How does inflation affect interest rates?