LONDON (Reuters) – Sterling fell on Friday to its lowest level since late 2020 against the dollar after dismal retail sales and consumer confidence data indicated dangers ahead for Britain’s economic growth.

The pound fell below $1.29 for the first time since November 2020 to a low of $1.28815, and was last down 1.1% on the day, the biggest one-day fall in two months.

Sterling also weakened against the euro, and was last down 0.7% at around 83.81 pence per euro.

British retail sales fell 1.4% in March from February, much more than the 0.3% drop forecast in a Reuters poll.

British consumer sentiment too tumbled to its second lowest reading since records began nearly 50 years ago, as the worsening cost of living crisis hurt households’ confidence in the economy and their finances.

Comments from Bank of England Governor Andrew Bailey and external policymaker Catherine Mann on Wednesday also added to pressure on the pound.

Bailey said the central bank was walking a tight line between tackling inflation and avoiding a recession, while Mann highlighted the cost of living squeeze.

“Mann’s comments yesterday about a drag in consumption being a “circuit-breaker” for inflation expectations rising further has rung true today for markets after the substantial decline in retail sales data,” said Simon Harvey, head of currency analysis at Monex Europe.

The retail sales decline may foreshadow a greater consumption collapse later in the year, he warned.

The data did not, however, erode bets on an aggressive BoE rate rise cycle, with money markets pricing in a further 167 basis points worth of tightening this year.

The pound was also having to contend with domestic and international political uncertainty.

On Wednesday, British lawmakers triggered an investigation into whether Prime Minister Boris Johnson had misled parliament, while an influential ally called for Johnson to quit.

Britain may have to take unilateral action to address problems in Northern Ireland caused by Brexit arrangements, Northern Ireland Office minister Conor Burns told LBC radio on Friday.

ING analysts said in a note that the threats by the UK government to rip up parts of the Northern Ireland protocol “could add some downside risks to cable”.

(Reporting by Dhara Ranasinghe and Samuel Indyk, editing by Stefano Rebaudo and Tomasz Janowski)