ALEX BRUMMER: Every rise in dollar makes fight against inflation harder

ALEX BRUMMER: Upswing in dollar is reaching levels at which it may become a cause for G7 nations – every rise makes fight against inflation harder

  • World Bank fears race to kill off inflation, exacerbates recession risks 
  • Federal Reserve seeks to blot out error of delaying inflation fight 
  • Consequence is another surge in dollar on foreign exchange markets

Should we be surprised that Britain’s retail sales took a dive in August? Not at all. In spite of record temperatures the national dialogue was dominated by energy and the apocalyptic choices consumers will have to make between food and freezing – as if Britain is a country without a welfare safety net. 

Reality is that the ancien Tory regime, in two packages, pumped £37billion into the economy to alleviate hardship long before Labour and various thinktanks started raising merry hell. 

The result is wobbly consumer confidence and plunging retail sales. 

Upswing: Every rise in the dollar makes the fight against inflation harder

The government of Liz Truss barely was off the starting blocks before the glorious life of Queen Elizabeth II ended. 

But it is worth noting that what is being described by some as the most ideological free market government of modern times began its life with a large-scale intervention. 

It is debatable whether the £100billion-plus cost of limiting domestic energy bills to £2,500 over the next two winters is the biggest such measure of recent times. 

Covid-19 assistance, including furlough, cost £300billion at its peak. And Gordon Brown went big at the time of the banking crisis, with a £500billion rescue. 

No individual or business could ignore predictions of a horrendous rise in the energy price cap. 

But the idea that nothing would be done was misleading and only has served to stymie a weak recovery. 

The new enemy on the block is rising interest rates. 

The World Bank fears that the arms race to raise borrowing costs, to kill off inflation, exacerbates recession risks. 

Western nations will find it difficult but the pain for emerging markets and developing countries will be worse. 

Sri Lanka may have been the first to face riots on the streets but it is unlikely to be the last. 

Financial markets are dominated by the prospect of another 0.75 percentage point rise in the key American federal funds next week, as Federal Reserve chairman Jay Powell seeks to blot out his error of delaying the inflation fight. 

The consequence is another surge in the dollar on the foreign exchange markets with the greenback in line for a full 1 per cent rise on the week against the currencies of its main trading partners. 

The euro and Japanese yen have taken beatings but it is the pound which is the main victim, skidding to a 37-year low yesterday of $1.1351 on the 30th anniversary of Black Wednesday. 

That was the day when then Chancellor Norman Lamont revealed that his wife ‘had heard him singing in the bath’. 

The upswing in the dollar is reaching levels at which it may become a cause for the G7. In modern times it has only recorded year-on-year gains of 20 per cent against the currencies of its main competitors on four occasions. 

They were in 1992 when sterling was ejected from the exchange rate mechanism (the precursor of the euro); at the turn of the millennium when a newly minted euro tumbled; in the aftermath of 2008 great financial crisis; and when the oil price collapsed in 2015. This week the Bank of Japan signalled it had enough. It is hard to think that the Bank of England Governor Andrew Bailey isn’t having collywobbles too. 

Every rise in the dollar makes the fight against inflation harder.

Wrong orbit 

There was a huge sigh of relief from US satellite outfit Viasat after the Department for Business, Environment & Industrial Strategy (BEIS) ruled that its £6billion bid for British satellite pioneer Inmarsat will not be scrutinised under the terms of the National Security and Investment Act. 

In spite of the economic commitments Viasat has made so far on keeping a UK headquarters, research and development, and support for space education, the deal is not home and dry yet. 

It still has to clear high hurdles often put up by the Competition and Markets Authority and EU regulators. 

The first big decision from Whitehall since Jacob Rees-Mogg took over at the BEIS favours free markets and inward investment over retaining proprietary British satellite communications and tracking technology. 

That’s not a good omen for the future of the UK’s depleted technology and engineering sector.