Sterling has fallen today against the Dollar to its lowest value since late 2020, as the UK economy looks to be stalling once more. Bank of England policymaker Catherine Mann commented yesterday that the UK economy could already be in the grips of stagflation, saying “in some senses, we could say we’re already there”.

In a timely example of just this issue, a raft of retail and manufacturing figures released this morning paints a worrying picture of the outlook for the UK in the months ahead. UK retail sales fell 1.4% in March having already fallen in February, and with consumer confidence at its lowest since the 2008 financial crisis there is little to suggest these figures will improve anytime soon.

After months of soaring prices, it is unsurprising that British shoppers are feeling the pinch, but the end of pandemic restrictions had kept spending high. The cost-of-living crisis may finally be biting however, with consumers reigning in their household costs, and many forced to save their money for essentials like food, fuel, and energy.

220422 GBP Chart

The Pound sunk this morning as trading opened, falling as low as $1.28636 so far and making it plain that markets feel there is more pain to come for the UK economy. The weaker Pound helped push gold back above £1,500 per ounce however having slipped below just last week. In USD, gold is essentially flat at $1,943.99 per ounce, while Sterling’s weakness puts it up by 1.5% at £1,511.02.

With high inflation now firmly entrenched, the UK’s economic recovery is only likely to further stall, prompting the warnings of stagflation from the likes of Mann. The lack of growth will put pressure on the BoE’s ability to raise rates, or risk another recession having only recently returned to growth. With earnings being squeezed so hard however, the BoE may have little power to affect the outcome in any meaningful way in the near-term.

So far, the US is further behind the trajectory of UK consumers, but for how long this continues remains to be seen. US CPI is at 8.5% annually, and has interest rates at just 0.25% compared to the UK’s 0.75%. If stagflation also hits the US economy, then gold could breakout past $2,000 per ounce and head towards the all-time high.