A falling pound could be the next inflation shock to hit the UK.
Yesterday's news that the cost of living is soaring – and could lead to higher interest rates - was depressing enough, but another bad economic development appears to be on the horizon.
An article this morning about the possible future fate for our currency makes unsettling reading.
Ambrose Evans-Pritchard, international business editor of the Daily Telegraph, points out that the strong pound this winter has kept the worst of post-pandemic inflation at bay in Britain.
But he adds: "We are now in a surreal situation. Would you have believed it if told after Brexit that sterling would today be higher than it was a decade ago against the Japanese yen - the ultimate safe-haven currency issued by a country in perma-deflation?
“The Bank of England's trade-weighted index for sterling - the one that matters - has risen 8% since mid-2020 and is above the level just before the pandemic began. It is roughly where it was all through the post-Lehman and early austerity years.
“This currency strength is unsustainable. Sterling is arguably as over-valued today as it was in those halcyon days before the global financial crisis.”
Mr Evans-Pritchard says the biggest component of the UK's stubborn trade gap is now energy.
He goes on: "This is why I favour pulling out the stops on every kind of domestic alternative, wherever there is a credible case that it can match or undercut imported gas, oil, and electricity on price."
Mr Evans-Pritchard adds that the UK is now entering a period of falling real living standards. All key measures of inflation are running higher than pay growth.
Householders are already dreading massive rises in their energy bills in the months ahead.
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This morning's markets
Despite so much downbeat economic news at the moment, the FTSE 100 still managed to start today on the front foot.
The UK's top share index was ahead by more than 20 points at 7,612.49 soon after the market opened.
Wednesday was also a positive day for the FTSE 100 - climbing by 26.11 points to 7,589.66.
However, leading stock markets on the other side of the Atlantic suffered another day in the red yesterday.
The Dow Jones Industrial Average slipped by 339.82 points, or nearly 1%, to 35,028.65.
Meanwhile, the Nasdaq Composite Index dropped by 166.64 points, or 1.15%, to 14,340.26, while the S&P 500 dipped by 44.35 points, or 0.97%, to 4,532.76.
Companies reporting today
- Interims: Superdry.
- Trading updates: Associated British Foods, AJ Bell, CMC, Deliveroo, Entain, Gear4Music, Kier Group, N Brown, PayPoint, Premier Foods, Wickes.
- Other updates: Royal Institution of Chartered Surveyors monthly housing market report.