The days of the two-dollar pound appear to be over as the value of sterling fell almost 3% against the US dollar. One pound now buys just $1.64, marking a five-year low in the exchange rate.
The pound’s decline against the dollar highlights the impact the US bail-out is having on its economy. It also reflects growing fears that the UK is heading for long-term recession, and will need to make further interest rate cuts.
Speaking last night, the Bank of England governor Mervyn King told business leaders in Leeds: ‘It now seems likely that the UK is entering a recession.’
Impact on shoppers
With £1 now buying just $1.64 it is possible that consumers will think twice before booking a Christmas shopping spree in New York. Spending $1,000 on gifts will now cost £138 more than it did last November when £1 would get you $2.17.
If the pound continues to weaken against the dollar, visitors to the Eurozone may reap the benefit as the pound has recovered some of its strength against the euro. One pound will currently get you almost 1.27 euros, up from 1.22 euros a £1 just last month.
For daily consumer news, subscribe to the Which? news RSS feed here. If you have an older web browser you may need to copy and paste this link into your newsreader: http://www.which.co.uk/feeds/reviews/news.xml. Find out more about RSS in the Which? guide to news feeds.