A foreign exchange dealing room in Seoul, South Korea. AP Photo
A foreign exchange dealing room in Seoul, South Korea. AP Photo
A foreign exchange dealing room in Seoul, South Korea. AP Photo
A foreign exchange dealing room in Seoul, South Korea. AP Photo

Sterling’s slide against the dollar sparks fears of economic spiral


Gillian Duncan
  • English
  • Arabic

Sterling’s slide against the dollar to a rate last seen in 1985 has sparked concerns that the plunge could represent the start of a dramatic UK economic downturn.

Some have said it could trigger a collapse in confidence in British assets and a balance of payments crisis.

Fund managers, analysts and former policymakers say such a scenario is unlikely, but they suspect the pound will need to become cheaper before investors buy the currency again.

The currency fell to as low as $1.1407 on Wednesday, as investors took a dim view of the economic outlook under new British Prime Minister Liz Truss.

On Thursday, Ms Truss is due to unveil a £100 billion ($114.8bn) package to cap consumer energy bills for homes and businesses, funded by a massive increase in government borrowing.

In an interview with Sky News, the new levelling-up secretary, Simon Clarke, dismissed the idea that the proposals prompted the plunge in the pound.

“We all obviously would never want to find ourselves in this situation,” he said. “And there is no question that it is the latest in a series of quite extraordinary interventions that the government has had to make to support families, which obviously reflects our determination to do the right thing for the British people.

“But let’s be clear, if we fail to act. If we don’t protect the economy against the shock of the size and scale we are talking about then there is going to be enormous economic damage in any event.”

He said the hardship caused by the proposed rise in the energy price cap in October and beyond would be “enormous”.

The government was already hearing from businesses about their inability to pay.

“And so we could have anticipated I think a huge amount of damage to the economy had this rise gone ahead unchecked,” he said.

“So you are balancing, frankly, two very challenging things. In these circumstances markets will respect that this is the most sensible thing to do.”

Ms Truss is under scrutiny as she gets ready to cut taxes and raise spending in a gamble that loosening the fiscal purse strings — at a time of double-digit inflation — will boost economic growth.

“The market has moved very far and very fast in the last couple of weeks, in the face of what is a relatively bleak economic outlook. That means there will be a recession but it will be deeper in the UK,” said Charles Diebel, head of fixed income strategy at Mediolanum Asset Management, which is betting against the pound.

Britain faces slower economic growth and more persistent inflation than any other major economy next year, the International Monetary Fund forecasts, and Goldman Sachs expects the UK economy to contract by 0.6 per cent in 2023.

“The currency is cheap but probably needs to be cheaper,” Mr Diebel said.

Several economists including top economist Mohamed El-Erian forecast the pound will hit $1.10 soon, implying a further 4 per cent fall from current levels.

Capital Economics believes sterling could test its all-time low of near $1.05, plumbed in March 1985, just before G7 powers acted to rein in the “superdollar” of the Reagan era, in the so-called “Plaza Accord”.

Yet the rush to dump British assets has been driven by international developments too, including soaring gas prices and global growth worries that have driven investors to seek shelter in the dollar. The euro and yen have also hit multi-decade lows.

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Who's who in Yemen conflict

Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government

Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council

Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south

Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory

WRESTLING HIGHLIGHTS
Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

Quick pearls of wisdom

Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”

Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.” 

if you go

The flights

Etihad, Emirates and Singapore Airlines fly direct from the UAE to Singapore from Dh2,265 return including taxes. The flight takes about 7 hours.

The hotel

Rooms at the M Social Singapore cost from SG $179 (Dh488) per night including taxes.

The tour

Makan Makan Walking group tours costs from SG $90 (Dh245) per person for about three hours. Tailor-made tours can be arranged. For details go to www.woknstroll.com.sg

EXPATS
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How to help

Call the hotline on 0502955999 or send "thenational" to the following numbers:

2289 - Dh10

2252 - Dh50

6025 - Dh20

6027 - Dh100

6026 - Dh200

8 traditional Jamaican dishes to try at Kingston 21

  1. Trench Town Rock: Jamaican-style curry goat served in a pastry basket with a carrot and potato garnish
  2. Rock Steady Jerk Chicken: chicken marinated for 24 hours and slow-cooked on the grill
  3. Mento Oxtail: flavoured oxtail stewed for five hours with herbs
  4. Ackee and salt fish: the national dish of Jamaica makes for a hearty breakfast
  5. Jamaican porridge: another breakfast favourite, can be made with peanut, cornmeal, banana and plantain
  6. Jamaican beef patty: a pastry with ground beef filling
  7. Hellshire Pon di Beach: Fresh fish with pickles
  8. Out of Many: traditional sweet potato pudding
Updated: September 08, 2022, 10:38 AM