Pound hits new 37-year low on Black Wednesday anniversary

The pound has hit a new 37-year low against the US dollar, on the anniversary of Black Wednesday.

Sterling edged briefly close to parity with the US dollar in the early hours of London trading on Friday morning, as inflation continues to strangle the UK economy.

The pound dropped below USD $1.14 for a couple of hours on Wednesday morning, pushing it below recent lows and taking it to its worst point since 1985.

The pound's nosedive came on the anniversary of Black Wednesday, 30 years ago today.

Meanwhile, new official retail figures painted a bleak picture of the UK’s economy, with the soaring cost of living continuing to hamper household spending. The retail figures revealed a plunge of 1.6% in August, compared to the 0.5% fall economists predicted, suggesting households are cutting back in the face of rising prices.

Investors are worried about the threat of a UK recession this autumn, on top of the government's touted £100 billion package to deal with the energy crisis.

Prime Minister Liz Truss has promised to cap the typical household annual energy bill at £2,500, after prices threatened to soar from October 1 when regulator Ofgem's energy price cap lifts. “This morning’s retail sales in the UK continued to show a deteriorating consumption picture in the UK, which emerged more from the continuation of a steady downtrend from last summer rather than the single grim data point in a rather volatile series,” Francesco Pesole, a currency expert at ING, said. “This has been the last important piece of data before the Bank of England meeting on Thursday and has hit the pound this morning.”

The pound regained some ground in the early afternoon but was still trading down around 0.5% against the dollar as the markets closed, buying a little over $1.14.

It lost 0.3% against the euro, also trading at a little over €1.14.

The drop came on the 30th anniversary of Black Wednesday, when the UK had to withdraw from the European Exchange Rate Mechanism (ERM). The ERM was designed to ensure that the exchange rates between European currencies remained stable. Governments and central banks had to ensure that their currency did not fluctuate by more than 6% from their European neighbours - but the UK failed to do this.

The value of the pound was dropping quickly and the John Major government spent billions trying to prop it up.

But it could not keep up with currency traders desperate to sell pounds. Eventually, the government had to withdraw sterling from the ERM after failing to keep it above the minumum exchange rate for membership.

The episode damaged the Conservative Party’s reputation for fiscal stewardship for years. Sterling has been weak against the dollar for months, largely because of the strength of the US currency.

The euro has also plumbed multi-decade depths against the dollar.

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