The runaway pound has broken through the two dollar barrier for the first time in 15 years as investors bet on a rise in interest rates to cool inflation. Good news for British shoppers in New York, less good for exporters back in Britain. Consumer prices accelerated to 3.1% in March, according to the UK statistics office- the highest in more than a decade.
The Bank of England even had to write a letter to the government explaining why- the first time the bank’s taken the measure since its independence in 1997. The letter is necessary when inflation is more than one percent away from the bank’s two percent target.
A pound is now worth just over two dollars because of upward movement in growth and inflation. Interest rates are now also expected to go up to five and a half percent in May, taking money out of pockets and acting as a brake on consumer spending and price rises.
The last time the pound crossed the two-dollar threshold was just before the so-called ‘Black Wednesday’ in September 1992. Speculators pushed the Pound out of a European system that pegged back currencies. The Pound tumbled back down against the dollar and the then-German currency the Deutschmark.
Three interest rate rises since last August have failed to cool the Pound. More rises will make British borrowing costs the highest of all the G7 countries. Some analysts have said the Pound should eventually settle at $2.10.