The fall of the pound against the dollar to levels not seen since 1985 has given rise to talk of a sharp fall that will lead to a collapse in confidence in British assets and a balance of payments crisis.

Investment fund managers, analysts and even former top monetary policy makers say this scenario is unlikely. The currency fell to $1.14 yesterday as investors panicked about the outlook for the economy. The British pound has lost almost 10% of its value since early June – a big drop for one of the strongest currencies in one of the world’s largest economies. And Goldman Sachs expects the UK economy to contract by 0.6% in 2023.

New prime minister Liz Truss is being watched closely as she prepares to cut taxes and use the many billions that will be further borrowed to fund an energy bill freeze. “The market has moved too fast and too far in recent weeks, despite the bleak economic outlook. This means that a recession is coming, which will be worse in Britain,” said Charles Diebel, head of Mediolanum Asset Management, which is betting on the fall of the pound. It is noted that the UK is facing a slowdown in economic growth, while next year it will face inflation that is much more persistent than in any other major economy, the International Monetary Fund predicts. “The currency is cheap, but perhaps it should become even cheaper,” says Diebel. Several economists, including Mohamed El-Erian, are predicting that the British pound will soon fall to $1.10, down another 4% from current levels.

Capital Economics estimates that in March 1985, the pound sterling could hit a low approaching $1.05. dollar shelter. The euro and yen are at a ten-year low. Also, the devaluation of the British pound revives the discussions that took place the day after the referendum in Britain, in 2016, in which it was said that the country behaved like an emerging economy with a very unstable currency.

Many investors do not agree with such comparisons and retain confidence in institutions such as the Bank of England. Of course, Deutsche Bank warned last Monday that the risk to the UK balance of payments “should not be underestimated” under Prime Minister Ms Truss. August was the worst month for some British bond prices as investors rushed to get rid of them. The yield on 10-year UK government bonds rose this week to around 3.15%, the highest level since 2011.