London Daily

Focus on the big picture.
Thursday, Oct 29, 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
Met Office Issues Extended Forecast Highlighting Stable High Pressure Weather Patterns Across the United Kingdom
Scottish Finance Secretary Shona Robison Outlines Changes to Tax Thresholds and Residential Property Levies in Edinburgh
Financial Markets and Government Bond Yields Remain Stable Following Muted Reaction to Autumn Budget Measures
Defence Committee Chair Tan Dhesi Criticizes Budget for Delaying Critical Defence Spending Decisions to Next Year
International Monetary Fund Forecasts United Kingdom Economic Growth at One Point Three Percent for Year
Office for Budget Responsibility Assesses Fiscal Headroom Reduced to Fifteen Billion Pounds Following Global Energy Shocks
Chancellor John Healey Delivers First Autumn Budget Introducing Household Energy Support and Bank Tax Hikes
Aberdeen City Council Co-Leader Faces Binding Vote Challenge as Local Councillors Launch High Court Legal Battle
Housebuilding Across Scotland Falls to Eleven-Year Low Despite Government Declarations of a Housing Emergency
Former Prime Minister Gordon Brown Organizes National Innovation Summit in Manchester to Boost Regional Competitiveness
UK Government Faces Mounting Criticism Over Lack of Environmental Consultation During Artificial Intelligence Datacentre Expansion Talks
Greggs Announces Closure of Four Major Manufacturing Facilities Across Britain Resulting in Seven Hundred Forty Job Losses
British Retail Consortium Warns That Cumulative Employment and Regulatory Costs Threaten High Street Price Stability
Lloyds Banking Group Chief Executive Charlie Nunn Warns That Increased Bank Taxes Could Deter Long-Term Economic Investment
Ipsos Polling Reveals Seven in Ten Britons Expect Personal Tax Increases Amid Deep Public Economic Pessimism
Chancellor John Healey Delivers First Autumn Budget in Parliament Amid Tight Fiscal Constraints and Slower Growth Forecasts
United Kingdom Finance Monthly Review Highlights Rising Long-Term Borrowing Costs and Persistent Energy Price Pressures Across British Markets
Royal Marines Pioneer Rapid Autonomous Drone Operations During Major High North Exercise Involving NATO Allies
House of Commons Justice Committee Urges Chancellor to Align Prison and Courts Reform Ambitions With Concrete Budgetary Resources
Government Investigates Rapid Artificial Intelligence Datacentre Expansion Strategy Following Scrutiny Over Power Grid Demands and Planning Backlogs
His Majesty's Inspectorate of Constabulary Warns Third-Party Supplier Breaches Threaten United Kingdom Police and Fire Service Data
Number of British Businesses in Financial Distress Reaches Highest Level in Two Decades Ahead of Fiscal Announcement
Chancellor John Healey Prepares Autumn Budget Amid Intense Market Scrutiny Over Fiscal Headroom and Spending Pressures
Education or Indoctrination? The Growing Debate Over Religious Participation in British Schools
Germany's Vanishing Shopfronts: The Silent Collapse of the Businesses That Built Its Cities
Northern Ireland Executive Reaches Agreement on Public Transport Modernization and Cross-Border Rail Infrastructure Funding
Department for Energy Security and Net Zero Approves New North Sea Carbon Capture and Storage Industrial Clusters
Office for National Statistics Reports Stabilization in Private Rental Growth Across Major English and Welsh Regional Cities
United Kingdom Automotive Manufacturing Output Rises Moderately as Electric Vehicle Assembly Lines Expand in the Midlands
Competition and Markets Authority Launches Formal Inquiry Into Cloud Computing Infrastructure and Artificial Intelligence Partnerships
Scottish Government Finalizes Emergency Budget Adjustments Following Multi-Year Public Sector Funding Shortfalls
National Health Service England Announces Major Emergency Care Overhaul to Alleviate Severe Winter Capacity Pressures
Chancellor Rachel Reeves Prepares Autumn Budget Amid Intensifying Scrutiny Over Public Spending and Fiscal Rules
Bank of England Signals Cautious Approach to Further Interest Rate Cuts as Persistent Wage Growth and Inflation Pressures Remain
Transport for London Unveils Expanded Zero-Emission Bus Fleet to Meet Capital Air Quality Targets
Higher Education Institutions Face Deepening Financial Strain Amid Declining International Student Enrolment
Automotive Industry Leaders Criticize Government Tax Policies and Urge Action on Retail Consumer Confidence
Environment Agency Issues Flood Alerts Across Scottish and English Waterways Following Heavy Rainfall
Independent Audit Highlights Persistent Security Vulnerabilities Across Legacy Government Digital Portals
Northern Ireland Political Leaders Clash Over Westminster Funding Allocations Ahead of Autumn Budget
Ethnic Minorities in England Face Significant Disparities in Routine Breast Cancer Diagnosis Rates
National Police Chiefs Report Alarming Surge in Domestic Abuse Cases Fuelled by Expanding Illegal Cocaine Market
Government Announces Two Hundred and Twenty Million Pound Pothole Funding Boost for Local Highway Authorities
China Issues Formal Warning Over Potential United Kingdom Restrictions on Chinese Electric Vehicles
British Defence Ministers Sign E5 Pact to Enhance European Military Capabilities and Industrial Cooperation Within NATO
United Kingdom Business Activity Expands at Fastest Pace in Eight Months According to S&P Global Flash Survey
Chancellor John Healey Prepares Major Devolution Package and Bank Profit Surcharge Ahead of Upcoming Autumn Budget
National Health Service Consultants in England Announce Two-Day Strike Action Scheduled for November
Major Clean-Up Under Way Across Britain Following Destruction Caused by Consecutive Storms Austen and Boelo
KEY TRENDS TO WATCH
×