The pound fell sharply against all 16 of the most actively traded currencies yesterday on concerns that the rise in oil prices could trigger at best a ‘double dip’ recession’ and, at worst, a period of stagflation in the UK.
Oil prices reached a 2 ½ year high of USD£129 before falling back slightly on speculation that Saudi Arabia, the world’s biggest oil producer may increase production to offset the fall in Libyan production. Libya produces over 2% of world oil output and production this week has been virtually halted.
The Confederation of Business Industry (CBI) reported that high street sales growth slowed sharply in February and retailers are braced for flat sales next month. It suggested that government cuts and the recent VAT rise are hurting the consumer.
The Office of National Statistics reported at the beginning of the month that retail sales growth was strong in January. However, this may have been due to the bad weather in December causing some shoppers to postpone purchases.
The US dollar also fell, to a new low against the Swiss franc on Thursday, as the defensive qualities of the Swiss franc attracted cautious investors worried by developments in the Middle East.
Commentary by Tony Redondo
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