What does the Pound falling mean

1. Higher prices

A fall in the value of the pound will increase the price of goods and services imported into the UK from overseas.

That’s because when the pound is weak against the dollar or euro, for example, it costs more for companies in the UK to buy things such as food, raw materials or parts from abroad.

Firms could choose to pass on those higher prices to their customers.

It comes at a time when the cost of living is already increasing at its fastest rate in nearly 40 years, driven by the cost of food and fossil fuels going up.

2. Fresh pressure on energy costs

Energy costs are one of the things that are also likely to increase as the value of the pound falls.

The price of all of the gas that the UK uses is based on the dollar – even if the gas is produced in the UK.

Prime Minister Liz Truss has had to outline measures to deal with soaring gas and electricity bills faced by households and businesses in the wake of the war in Ukraine.

That included the energy price guarantee, which sets the the highest amount suppliers are allowed to charge domestic households for every unit of energy they use.

Suppliers could come under further strain due to the slide in the value of sterling, although wholesale gas prices have fallen from recent highs.

3. Higher repayments for some mortgages

The falling pound is likely to push inflation, which tracks how the cost of living changes over time, higher – if companies choose to pass on higher costs to consumers.

The Bank of England is expected to counter higher inflation by raising interest rates even further.

It is one way the Bank can try to control rising prices – by increasing the cost of borrowing and encouraging people to borrow less and spend less, as well as saving more.