24th July 2026
Look at the currency markets and the picture appears reassuring.
The pound has been holding up against the US dollar despite wars, oil price shocks and uncertainty in global markets.
For investors, sterling has shown resilience.
But for many households, that does not match their everyday experience.
Food bills remain high.
Fuel costs remain a concern.
Mortgage and borrowing costs are still much higher than a few years ago.
Energy bills continue to worry many families.
So how can the pound appear reasonably strong while life still feels expensive?
The answer is that the value of the pound is only one part of a much bigger economic picture.
A Strong Pound Does Not Mean Prices Go Back Down
One of the biggest misunderstandings about inflation is that when inflation slows, prices fall.
Usually, that is not what happens.
Inflation measures the speed at which prices are rising.
If inflation falls from 10% to 2%, it means prices are increasing more slowly.
It does not mean they return to where they were before.
A simple example:
A product costing £100 rises by 10%.
It now costs £110.
If inflation then falls to 2%, the price may rise more slowly to £112.20.
The price has not gone back to £100.
This is why many households feel that the cost of living crisis has not disappeared.
The rate of increase has slowed, but the higher price base remains.
Why Has The Pound Held Up?
There are several reasons sterling has remained relatively supported.
Interest rates
Higher interest rates can attract investors because they can earn better returns on UK assets.
Foreign investors buying UK government bonds often need pounds to do so.
That can support the currency.
UK financial markets
Despite political and economic pressures, Britain remains one of the world's major financial centres.
That provides some support for sterling.
The dollar is not always stronger
Although the US dollar is often seen as a safe haven, it also faces its own challenges from government debt, trade disputes and inflation concerns.
Currencies move relative to each other.
The pound can look stronger even when the UK economy itself is under pressure.
So Why Does Life Still Feel Expensive?
Because many of the pressures facing households are not caused by the exchange rate alone.
Energy Costs
Energy remains one of the biggest examples.
Oil is priced globally in dollars.
A stronger pound helps reduce the impact slightly, but it does not cancel out a major rise in the oil price.
If crude oil rises from $80 to $100 a barrel, that increase still feeds through.
The effects appear in:
petrol and diesel;
heating oil;
transport costs;
food distribution;
business expenses.
For rural communities where transport distances are longer and many homes rely on heating oil, the impact can be particularly noticeable.
Food Prices
Food prices depend on far more than the pound.
They are affected by:
energy costs;
farming costs;
fertiliser prices;
labour costs;
weather;
global harvests;
transport.
A stable currency helps, but it cannot remove all these pressures.
Interest Rates
This is another reason households may feel squeezed.
Even if the pound is stable, borrowing costs can remain much higher than people were used to.
Higher interest rates affect:
mortgage payments;
loans;
business borrowing;
government debt costs.
The impact spreads throughout the economy.
The Government Feels It Too
The currency story connects directly with government finances.
When bond yields rise, the government pays more to borrow.
That means more money goes towards servicing debt.
Every extra pound spent on interest is a pound that cannot be spent elsewhere.
This creates pressure on:
public services;
investment;
taxation decisions.
The public may never see the bond market moving, but they can eventually feel the consequences.
The Winners From A Stronger Pound
A stronger pound does bring benefits.
Importers
Companies buying goods from overseas may pay less.
Consumers buying imported goods
Some products may become cheaper, particularly those priced directly in foreign currencies.
Travellers
A stronger pound gives holidaymakers more spending power abroad.
But these benefits can take time to appear.
The People Who Still Feel Pressure
Even with a relatively stable currency, many households remain affected by:
higher rents;
higher mortgage rates;
increased insurance costs;
council tax increases;
food prices that remain above previous levels;
energy costs.
A currency cannot reverse all these changes.
Why Rural Scotland Feels These Pressures Differently
For communities such as those in Caithness and the wider Highlands, some costs can be more difficult to avoid.
Distance matters.
Transport matters.
Energy choices matter.
A household may face:
longer journeys by car;
higher delivery costs;
fewer alternatives to private transport;
greater dependence on heating oil or electricity.
The exchange rate is only one part of the challenge.
The Bigger Lesson
The pound is important, but it is not the whole economy.
A strong currency can protect against some external shocks.
It cannot prevent:
global energy crises;
supply chain disruption;
higher interest rates;
increased government borrowing costs.
The financial markets may look at sterling and see stability.
Households look at their bank accounts and see a different reality.
Both can be true at the same time.
The pound may be holding up.
But the legacy of recent shocks is still being felt.
The real question is not only:
"What is the pound worth?"
It is:
"What can the pound buy?"
And for many families, that is the measure that matters most.