LONDON — Sterling slid to its lowest level against the euro in two weeks on Wednesday as investors turned their focus to the energy crisis hitting economic growth prospects in Britain.
According to press reports, Britain is making plans for organized blackouts for industry and households over winter when cold weather may coincide with gas shortages.
British consumer energy debt is already at an all-time high, with six million households owing an average of 206 pounds ($249) to providers, before bills leap in October and again in January, according to a survey.
The pound was 0.1% lower against the single currency at 84.66 pence by 1052 GMT, its lowest level since July 26.
“Reports that UK households face huge energy bills this winter is a reminder of the potential for a sharp drop in demand in the coming months… this is further negative news for the pound,” said Jane Foley, head of FX strategy at Rabobank in London .
She added that rising concerns about the UK energy predicament over the winter was also weighing on sterling, after press reports that Britain may face blackouts and that Norway may export less electricity due to low water levels in its reservoirs.
The pound is one of the worst G10 currencies performers this year, having weakened more than 10% against the US dollar in 2022 amid a grim outlook for the UK economy.
Bank of England Deputy Governor Dave Ramsden told Reuters an economic slowdown could eventually force the central bank to cut interest rates.
In its August meeting, the BoE raised its benchmark interest rates to 1.75% from 1.25%, the sixth hike since late 2021, and warned of a recession by the end of the year that could last until 2024.
That was the biggest interest rate hike in 27 years in a attempt to smother surging inflation on track to top 13%.
Gross domestic product (GDP) figures for the UK on Friday will provide the next key reading on the state of its economy.
Against a weakening dollar, sterling edged 0.1% higher at $1.2190 ahead of US inflation data release at 1230 GMT, after rising last week to a one-month high of $1.2291 versus the greenback.
Stephen Gallo, European head of FX Strategy at BMO Capital Markets, said sterling was nearly unchanged on the day, citing “a listless market ahead of one of at least two crucial US CPI releases ahead of” the US Federal Open Market Committee meeting in September .
Traders were awaiting for the US inflation figures to assess whether another Federal Reserve 75 basis point rate hike is likely next month.
(Reporting by Joice Alves; Editing by Mike Harrison)