LONDON: Sterling fell to a fresh two-year low against the US dollar on Thursday after a slew of data pointed to a weakening British economy.

Britain’s economy unexpectedly shrank 0.1% in March after a slump in car sales due to supply-chain problems.

Data also showed British employers added permanent staff last month at the weakest rate in more than a year suggesting the labour market might be cooling, according to a survey that will be noted by the Bank of England as it assesses inflation pressures.

“The 0.1% month-on-month drop in UK March GDP highlights the loss of momentum in the economy since the start of the year as higher inflation bites,” said Jane Foley, head of FX at Rabobank London.

The Bank of England will have to push borrowing costs higher to control fast-rising inflation, but its four interest rate increases since December are having an impact on the economy, Deputy Governor Dave Ramsden told Bloomberg News.

“Hawkish remarks from Ramsden are a reminder of the stagflationary theme and have offered no respite to the battered pound,” Rabobank’s Foley added.

CIBC Economics said it had revised down its forecast for sterling, in line with the deterioration in the growth backdrop and squeeze to incomes from higher inflation and taxes.

By 1455 GMT, the pound was down 0.1% at $1.22300 against the dollar, after touching $1.2165, its lowest since May 2020, in early London trading.

Adding pressure on sterling, the dollar hit a two-decade high after US inflation eased less than markets had expected, likely keeping the Federal Reserve on course to tighten policy aggressively.