The pound sank to its lowest point in eight months on Tuesday as investors worried that the fuel crisis sweeping the UK could lead to a sharp slowdown in growth at the same time as a surge in inflation.
Sterling fell as much as 1.2 per cent to $1.353, its biggest one-day drop against the dollar this year and the lowest level since January. Analysts said the panic buying of petrol over recent days was the symptom of broader supply chain issues that threaten to undermine the economy’s recovery from the Covid pandemic.
Shortages of fuel “have at least increased the tail risk of the country coming to a standstill in the near term,” said Shreyas Gopal, a currency strategist at Deutsche Bank. “And even if fuel panic-buying stops by the end of the week, as the government and industry expect, the UK’s more structural supply problems will remain. The fuel shortage is to some extent simply the vehicle through which the wider labour shortages are biting the most at the moment.”