Sterling rocked by Labour jobs disaster: Pound slips under $1.35 as youth unemployment soars

Holidaymakers are suffering a ‘half-term hit’ as a mounting jobs crisis under Labour sends the pound tumbling.

In a bleak report yesterday, the Office for National Statistics revealed unemployment stands at a five-year high of 5.2 per cent following more than 700,000 redundancies since the General Election.

And youth unemployment has soared to an 11-year high of 16.1 per cent, as Chancellor Rachel Reeves was warned that a ‘lost generation’ of young people face spending ‘a lifetime of benefits’.

The gloomy figures saw investors dump the pound as they bet that the Bank of England will cut interest rates again in the coming months in a desperate bid to prop up the ailing economy.

According to financial markets, there is a near-80 per cent chance rates will be cut from 3.75 per cent to 3.5 per cent as soon as next month, before falling to 3.25 per cent by the end of the year.

Some analysts believe rates could be cut lower still – further hitting the value of sterling.

Jobs crisis: Rachel Reeves (pictured) warned that a ‘lost generation’ of young people face spending ‘a lifetime of benefits’

The prospect of lower interest rates typically weakens a currency and the pound fell below $1.35 against the US dollar, having traded above $1.36 earlier in the day. 

Sterling also dropped from as high as €1.15 against the single currency to €1.1425 – its lowest level this year.

Simon Phillips, managing director of travel money firm No1 Currency, said: ‘The sharp fall in the value of sterling means that Britain’s deepening economic gloom is even impacting families who’ve gone abroad to get away from it all.

‘With the Bank of England now widely expected to cut UK interest rates again next month, international investors have been dumping the pound. 

Sterling’s slide against the euro, the US dollar and many other popular holiday currencies means thousands of British travellers have seen their spending power take a half-term hit. Every meal or souvenir they buy will now cost just that bit more.’

The bleak jobs figures sparked a stinging rebuke from Labour grandee Alan Milburn, who warned Britain’s army of unemployed youngsters faces ‘a lifetime on benefits’.

The former Labour minister, who is leading a review into young people and work for the Government, said: ‘We face the risk of a lost generation.’

With wage growth also weakening, some analysts believe the Bank could cut rates to 3 per cent or even lower this year, barring any surprises on inflation.

Official figures are today expected to show inflation fell back in January having risen to 3.4 per cent in December.

James Smith, an economist at ING, said: ‘Barring any surprises, a March rate cut looks highly likely.

‘We expect another cut in June, and we don’t rule out the Bank taking rates even lower as it becomes more evident that inflation risks are subsiding.’