Gloomy UK economic outlook pushes battered sterling to fresh lows

The British pound fell to its lowest level since March 2020 on Monday as mounting concern about the economic outlook gave traders added reason to dump the currency against the broadly robust US dollar.

A fresh downgrade to British economic forecasts from Goldman Sachs, added to the downbeat mood towards sterling – which has slumped over 13% against the dollar this year.

In a note published on Monday, Goldman said it expected a British recession to begin in the fourth quarter of 2022, and forecast the economy would contract by 0.6% in 2023. 

London markets were closed for a public holiday, meaning trade was generally subdued.

Still, sterling came under fresh selling pressure and fell to as low as $1.16495 EUR=EBS - the lowest since March 2020. It was last down 0.3% at $1.1690 in Europe.

The pound was also down around 0.4% at 85.25 pence per euro EURGBP=D3, having hit its lowest level in over a month at 85.32 pence.

Inflation in Britain has hit a 40-year high and the Bank of England (BoE) has warned of a lengthy recession. Soaring energy bills have exacerbated concern about the economic outlook.

British energy bills will jump 80% to an average of 3,549 pounds ($4,188) a year from October, the regulator said on Friday, the latest example of what politicians have called a "cost-of-living crisis".

"The weak pound is mostly dollar-related but losses are twice as bad as the euro and sentiment is really bearish," said Kenneth Broux, a currency strategist at Societe Generale.

"Investors are more nervous about inflation in the UK than anywhere else; can the BoE bring it under control?"