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The British pound has fallen below $1.14 for the first time since 1985 as a combination of dollar strength and recession warnings weighed on Britain’s currency.

Sterling fell as low as $1.135 at 08:50 London before rising slightly to $1.1378, marking a new 37-year low. It followed the publication of figures showing a 1.6% fall in retail sales in August, which analysts at ING said showed a “deteriorating picture of UK spending”.

Meanwhile, European markets traded lower on Friday as growth fears, expectations of further rate hikes and continued volatility in the energy market weighed on stocks.

The pan-European Stoxx 600 fell 1[ads1]%, with all sectors in the red.

Britain’s FTSE 100 was flat, Germany’s DAX fell 1.7% and France’s CAC 40 fell 1.8%.

Many sectors were down 2% or more, including basic resources, construction and industrials. Auto stocks fell 2.5% despite data showing a rise in new car sales in the EU for the first time in 13 months.

It comes after three days of losses for European shares, which have particularly dented energy and technology stocks. However, banking shares rose yesterday after Morgan Stanley analysts upgraded the sector.

The World Bank yesterday warned of a global recession in 2023, saying central bank hikes may not be enough to bring down inflation.

Asia-Pacific shares fell on Friday, with the Shanghai Composite down 0.96%, despite China’s industrial production and retail sales figures for August beating expectations.

Analysts at ANZ said shares and risk-sensitive markets would continue to struggle with inflation fears and expectations of rate hikes by the Federal Reserve next week.

US stock futures also fell on Friday morning.