The pound lost across the board yesterday, by close to 1% against the US dollar and half a percent against the euro, Australian and Canadian dollars, yen and yuan.
There were several prompts for this, coming from different directions, including homegrown problems such as the potential collapse of Thames Water, and some from overseas, notably the hawkish noises coming from the European Central Bank’s meeting in Sintra, Portugal.
The airwaves are full of central bankers’ opinions right now, and yesterday we heard from Christine Lagarde, president of the ECB, Huw Pill and Andrew Bailey from the Bank of England, and Jerome Powell of the US Federal Reserve.
All were clear that more interest rate rises were coming, but It was Bailey’s comments on the specific, core inflation problems of the UK that sunk the pound, with the implication that further interest rate rises potentially up to 6%, were likely to lead to a UK recession.
Christine Lagarde won’t be making many friends in Italy with her hawkish comments; Italy’s prime minister Georgia Meloni has been vociferous in her complaints about the ECB’s rate rises. Inflation is proving beatable in the eurozone, where we’ve seen Italian inflation fall to 6.4% and Spain’s to 1.9%.
In UK business news, Thames Water, with £14bn of debt and a widely acknowledged crisis in the UK water industry due to under-investment, is in danger of imminent collapse and re-nationalisation.
Chancellor Jeremy Hunt is meeting UK regulators this week to investigate “measures to ease the pressure on consumers”, amidst claims from some that companies are profiting from the cost of living crisis.
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