September 30, 2022

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London stagnation atmosphere: the pound falls to its lowest level since 1985

Inside the John Lewis Giant Shop, six storeys shopping mall, on Oxford Street, London’s shopping street, there are a few people on a Friday afternoon in September. The supermarket chain, the British version of Italy’s Rinascente, which also owns Waitrose supermarkets, suffered a loss of more than £90m in the summer: the impact of the drop in consumption. The problem is that the red color on the balance sheet does not register until last month, it is even more difficult, and above all that John Lewis, listed on the stock exchange and therefore obligated to make his statements public, is not the only person to accuse the first and disturbing signs of recession in the UK.

Off-season sales

Across town, mourning the Queen with the same John Lewis covering her windows in black, off-season sales signs were popping up everywhere. In August, an exceptional month for a boom in foreign tourists, who are returning in droves after two years of the pandemic, retail sales fell dramatically: British consumers had to grapple with rising prices and rising energy costs.

Britain’s Office for National Statistics Istat froze everyone on Friday, reporting that purchases of consumer goods fell 1.6% between July and August, while there was an expansion in June. The drop in retail sales was stronger than the -0.5% forecast by Reuters and is also the biggest drop since July 2021, when Covid’s “Freedom Day” began.

Impact on the British pound

The markets smell a sharp stagnation and the pound is falling: the dollar on Friday hit an all-time low since 1985. To get such a weak pound, you have to go back nearly 40 years. Other than Brexit, it is the cost of living crisis that is killing the UK. The pound fell, according to the Refinitiv database, by 0.8% against the dollar, to $1.137.

It is the first time it has fallen below the $1.14 level in nearly four decades. Just a few months ago, the British pound reached a record high of $1.4 with the potential to go up to 1.5. Expanding the view, we see that the British currency is in a “secular” weakening movement against the dollar: from a peak of 2.15 dollars per pound, the British currency has been slowly declining, with the negative record of 1985, repeating yesterday 37 years later. The new hype, which also coincides with another disastrous memory, that “Black Wednesday” in September 1992 when the pound sterling, as well as the lira, left the European exchange rate mechanism, renews anxiety over the future of the United Kingdom, after recently the governor of the Bank of England spoke of “the end of the scientist”.