The British pound had its worst day since the early days of the pandemic on Friday after Chancellor Kwasi Kwarteng announced his mini-budget.
Falling by more than 3 per cent, it dropped to its lowest value against the US dollar in 37 years.
It adds to a months-long fall in the value of the pound. Over the past month, it has dropped by 7 per cent — and the value of sterling is more than a fifth lower than it was a year ago.
This will mean higher prices for Britons over the coming months and years.
Samuel Tombs, an expert at Pantheon Economics, on Thursday said that inflation is likely to increase by about 0.5 percentage points in 2024 because of recent falls in the pound.
This means that every £1,000 that a family spends will be worth £5 less simply because of the drop in sterling, and it will leave the average household about £150 worse off every year.
It also adds to runaway inflation, currently at about 10 per cent, and to the massive rise in energy bills facing households and businesses across the UK and Europe.
Energy bills are one of the things that are likely to increase as the pound falls — the price of the gas the UK uses is based on the dollar, even if the gas is produced in the UK.
Foreign holidays are also likely to be more expensive, especially when visiting the US and other countries whose currencies the pound has dropped against.
Fortunately the euro is also weak at the moment, so holidays to the continent are unlikely to increase much in price because of currency changes.
There are also benefits to a lower-valued pound, as it will now be cheaper for tourists to come to the UK, for example.
It is also likely to make British companies more competitive when they export around the world: a cheaper pound makes it cheaper to buy British goods and services.
