Domesday Live

Why does the pound go up and down?

The pound's value depends on how many people want to buy it. It rises when investors expect higher UK interest rates, steady growth or a stable government, and falls when they expect the opposite or lose confidence. Shocks such as the 2016 referendum and the 2022 mini-budget moved it sharply, and so do swings in the US dollar.

Why it happens

• Interest rates. Investors move money to where it earns most. When UK interest rates are high compared with other countries, the pound tends to be in demand, and when rates are expected to fall it often weakens.
• Confidence in the economy. Growth, trade and the state of the public finances all affect how safe and rewarding the UK looks. A sudden loss of confidence, as when unfunded tax cuts were announced in September 2022, can send the pound down fast.
• The dollar's own moves. The pound is often measured against the US dollar, so a stronger or weaker dollar moves it even when nothing has changed in Britain.
• Political shocks. The vote to leave the EU in 2016 was followed by a large fall, as markets expected slower trade and growth.
• Why it matters at home. A weaker pound makes imports, fuel and holidays abroad dearer, which can add to inflation, and makes UK exports cheaper to buy overseas. A stronger pound does the reverse.