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Sterling’s Drop Worries Investors Over State of Economy

© AFP 2021 / NIKLAS HALLE'N A cashier displays multiple denomination US dollar and British pound Sterling bank notes
A cashier displays multiple denomination US dollar and British pound Sterling bank notes - Sputnik International, 1920, 28.09.2021
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The sterling saw its largest one-day drop of the year against the dollar, as investors fear that fuel shortages in the United Kingdom could create a dreaded ‘stagflation’ scenario.
On Tuesday, the sterling fell to $1.353, a 1.2% drop, as currency investors reacted to the underlying cause of the United Kingdom’s fuel shortage.
The driving force behind the UK’s fuel shortage has its origins in Brexit. When England decided to leave the European Union many truck drivers moved back to their home countries as additional border bureaucracy negatively impacted their income. The coronavirus pandemic accelerated the foreign truck driver exodus and left the UK with a labor shortage in a crucial economic sector.
Trucking might not be viewed as a crucial industry, but they’re the final step in the supply chain. Without a proper fleet of truckers, goods don’t arrive where and when they’re needed. The UK’s fuel shortage isn’t a product of a lack of fuel, but the inability to get fuel, in the necessary quantities, to where it needs to be.
The UK’s labor shortage, especially in the trucking industry, could ravage its economy as it tries to recover from the coronavirus pandemic. Due to a constrained supply chain, prices could rise, causing inflation, and the larger economy could stall. The term ‘stagflation,’ coined by Iain Macleod, could begin to creep back into the lexicon.
In a 1965 speech to the UK Parliament, Macleod coined the economic term: “We now have the worst of both worlds —not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of ‘stagflation’ situation.”
The drop in value of the sterling is a reaction to the dual difficulties the UK economy faces. The UK government is attempting to attract more truck drivers through temporary visas.
"We do have to stand on our own two feet as the United Kingdom," Transport Secretary Grant Shapps said.
The situation may take months to years to fill the nearly 100,000 person shortage of qualified drivers.
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