London Daily

Focus on the big picture.
Wednesday, Aug 12, 2026

Pound in biggest monthly fall against the dollar since 2016

Pound in biggest monthly fall against the dollar since 2016

Worries over the prospects for the UK economy led the pound to slide by about 5% against the US dollar in August.

The last time the pound fell so much against the dollar was in October 2016, in the aftermath of the Brexit vote.

Sterling sank again on Thursday morning, dipping below $1.16 on the currency markets.

Analysts said the fall reflects the darkening outlook for the economy, with consumers and businesses facing rising prices and soaring energy bills.

The Bank of England has predicted the UK will fall into recession towards the end of this year.

The weak pound means Brits travelling overseas will find their spending money will not stretch as far.

"Our economic prospects are not looking particularly good compared to the rest of the world," said Laura Lambie, senior investment director at Investec.

Ms Lambie said that recession fears were weighing on markets, with the investment bank Goldman Sachs warning this week that the UK could remain in recession until 2024.

A recession is defined as the economy getting smaller for two consecutive three-month periods.

August was also the worst month for the pound against the euro since the middle of last year.

UK government bonds - or debt - had their worst month for decades. Investors, worried about the riskiness of lending to the government, demanded higher returns for doing so, making it more expensive for the country to borrow money. In August, the yields, or the effective interest rate you would get, on some of those bonds have jumped the most since 1994.

Colin Ellis from ratings agency Moody's told the BBC's Today programme the jump in yields needed to be put in context. "Energy bills are very very high, and set to go up again. which means inflation is going to be high and that the Bank of England is raising interest rates in response.

"Those expectations for higher interest rates are part of what's driving these moves in the bond market at the moment."

However, he said: "We still have a stable outlook on our UK government rating so we see the risk as broadly balanced. We're not very concerned but of course a lot will depend on the policies that the next government chooses to put into place."


'Torrid month'


Fears have grown over the prospects for the UK economy after figures showed it shrank between April and June, with businesses and households feeling the impact of rising prices.

Those concerns were fuelled on Thursday, with a new study suggesting the manufacturing sector shrank in August for the first time since May 2020.

Separately, a report by the Resolution Foundation think tank said typical household disposable incomes are on course to fall by 10%, or £3,000, over this year and next, which is called the "the deepest living standards squeeze in a century".

The cost-of-living crisis is set to be the biggest challenge facing the new Prime Minister.

Both Rishi Sunak and Liz Truss have come under pressure to outline how they would support households if they succeed in getting the keys to Number 10.


''Grim forecasts about poverty spreading across the UK this winter highlight the deepening woes for the UK economy", said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

The Bank of England raised interest rates to 1.75% in August, while forecasting that the UK economy would fall into recession this year.

But Ms Streeter predicts that the Bank of England might be forced to slow down rate rises in the coming months, given the cost of living crisis.


Dollar strength


The pound's weakness is also a result of a strong dollar, analysts said.

The dollar is performing strongly due to US interest rate rises and because investors see it as a safer bet.

Last week, the head of the country's central bank, the Federal Reserve, indicated it would push ahead with further interest rate rises as it seeks to control inflation.

"The dollar has been exceptionally strong," Ms Lambie said.

"Also, the issues that we've had in Europe around energy do not have the same impact as the US, and I think economists are fairly agreed that the US will be the last to go into recession if they do go into recession at all, perhaps following the UK and Europe.

"So on both sides, from the sterling side and from the dollar side, that's really what has weakened sterling and strengthened the dollar."

Newsletter

Related Articles

0:00
0:00
Close
Former Labour Adviser Arrested on Suspicion of Spying for China Held Privileged Access as Top Party Donor
Turkish Parliament Passes Landmark Bill Granting Conditional Amnesty to Disarmed PKK Members
Donald Trump Warns FIFA Against Ousting Gianni Infantino Amid Revolt by Global Football Leaders
Jeff Bezos Joins Investor Group Closing In on $6 Billion Liverpool FC Stake
Police Conduct Cross-Border Raids Against Northern England Drug Network
Nicola Sturgeon Protested at Edinburgh Festival Fringe Event
Major UK Retail Chain Enters Administration With One Hundred Fifty-Four Stores Set to Close
Heathrow Renews Call for Runway Expansion After Losing Europe’s Busiest Airport Ranking
Government Condemns One Million Pound Thames Water Executive Bonus Amid Drought
NHS England Says More Than One Hundred Thousand Hepatitis C Patients Have Been Cured
UK Foreign Secretary Ed Miliband Calls for End to West Bank Settler Violence
UK Prepares for Deepest Partial Solar Eclipse Since Nineteen Ninety-Nine
UK Heatwave Triggers Amber Health Alerts as Economic Losses Reach Four Point Four Billion Pounds
UK Offers Electricity Bill Discounts to Communities Hosting New Power Infrastructure
Bank of England Expected to Hold Interest Rates at Three Point Seven Five Percent
UK Government Moves to Ban Subscription Traps and Misleading Retail Discounts
Andy Burnham Gives Councils New Powers to Block Betting and Vape Shops
UK Councils to Receive Sweeping Planning Powers to Ban New Vape and Betting Shops
Nicola Sturgeon Says She Has No Contact With Estranged Husband After SNP Embezzlement Case
Police Arrest Two Men After Aberdeenshire Defense Technology Office Break-In
Greater Manchester Councils Gain Powers to Restrict New Vape and Betting Shops
Coroner Finds Treasury Workplace Failures Contributed to Personal Assistant’s Suicide
English and Welsh Courts Ban Meta Smart Glasses Over Recording and Privacy Risks
Strait of Hormuz Disruption Could Double UK Inflation and Trigger Recession, Forecasters Warn
UK Expands Global Talent Visa Scheme to Support Research-Intensive Companies
UK Equity Funds Suffer Record One Point Six Billion Pound Outflow Amid Capital Gains Tax Fears
Three-Quarters of England Enters Drought as Fifth Summer Heatwave Raises Economic Risks
UK Hiring Stabilizes for First Time Since 2022 as Employers Adjust to Higher Payroll Costs
UK Chancellor Orders Whitehall Spending Cuts as Public Debt Exceeds Three Trillion Pounds
UK Manufacturing Output Records Fourth Straight Month of Growth
UK Condemns Russian Torture of Ukrainian Prisoners and Recruitment of Foreign Nationals
Long-Lost Royal Navy Warship HMS Tiger Found in English Channel After 118 Years
Northern Ireland Finance Minister Seeks Urgent Treasury Talks Over Regional Budget Pressures
UK Government Targets Subscription Traps and Misleading Discounts in New Consumer Rules
Alleged Cartel Boss Daniel Kinahan Extradited From Dubai to Face Criminal Charges
AI Chatbots Challenge Traditional News Consumption and Raise Job Concerns
Andy Burnham Government Promises Crackdown on Exploitative Business Practices
UK University Funding Model Faces Growing Pressure From Unsustainable Student Debt
Government Urged to Subsidise Energy Bills for Vulnerable UK Households
UK Military Spending Plans Threaten to Deepen Infrastructure Funding Gap
Israeli Government Rejects US Peace Framework for Gaza
New Labour Government Signals Closer Economic and Strategic Ties With European Union
Amber Heat-Health Alerts Issued Across England as Temperatures Threaten 36 Degrees
UK Economy Expected to Grow Despite Energy and Supply Chain Shock From Iran Conflict
Foreign Social Media Accounts Drove Disinformation During Belfast and Southampton Riots
Record Number of Migrants Cross English Channel in Single Vessel as Smugglers Deploy Mega-Dinghies
Russia’s A7 Builds a State-Linked Payments Network Beyond Western Sanctions
Reports of Mark Zuckerberg-Linked Superyacht Declining Rescue Assistance Draw Maritime Scrutiny
Preserving Three Banksy Artworks in London Has Cost Taxpayers Nearly £150,000
Four Ugandan Athletes Disappear From Delegation After UK Sporting Events
×