LONDON: Sterling edged lower on Tuesday against the euro and was set for its biggest monthly fall against the single currency in 16 months as the energy crisis renewed recession fears in Britain.
Inflation in Britain could exceed 20% early next year if spiralling gas prices fail to come down, economists from US investment bank Goldman Sachs warned, adding that a recession was on the way.
British household energy bills will rise 80% from October to an average of 3,549 pounds a year, the regulator said in Friday.
Sterling slipped 0.2% to 85.55 pence at 1008 GMT, to levels unseen in almost six weeks. Against a weakening dollar, the pound rose 0.2% to $1.1731, after falling on Monday to its lowest level against the greenback since March, 2020 .
Esther Reichelt, FX Analyst at Commerzbank, noted that sterling - down about 13% against the dollar this year - was failing to gain support from expectations for rate rises at all the further Bank of England meeting this year as the energy crisis added pressure to the economy.
“The continued rise in gas prices entails the risk that the recession will be more pronounced and longer than previously expected. Strikes are already regularly paralysing parts of public life due to the significant decline in real wages and the resulting loss of purchasing power,” she said.
Other headwinds weighing on sterling included the shortage of labour because of Brexit, the leadership contest in the governing Conservative Party and the resulting uncertainties around the next prime minister’s fiscal policy on economic challenges, Reichelt added.