By Lucy Raitano

LONDON, (Reuters) – The pound dropped against the dollar Wednesday following data showing that British inflation rose to 9%. This is the highest rate in over 40 years.

Sterling fell 0.9% to $1.23820 at 0846 GMT.

It reverses many of the gains made since Tuesday, when it reached its highest level since May 5th.

Although expectations were high that the Bank of England would increase interest rates further, the Bank of England’s latest inflation figures are raising concerns that the risk of recession could limit how much the central bank will go.

Susannah Streeter (senior investment and markets analyst, at the Bank of America) stated that “Yesterday it looked as if wage growth was rising and unemployment so high it meant that there was more room for maneuvering.” Hargreaves Lansdown (LON)

“Now, the skyrocketing costs of consumer goods is going to cause a drop in consumption power. This will impact the UK’s output.

Inflation at the consumer level reached 9% in April. This makes Britain the largest of Europe’s five most important economies. It is also the highest of the Group of Seven members. Canada and Japan have yet to release figures. They are unlikely to be able match Britain’s rate of price growth.

“Of course the bank doesn’t want to be so aggressive that it pushes the UK into a deep downturn, but it knows it needs to pull some levers to try to keep a lid on inflation,” said Streeter.

Streeter stated that U.S. Federal Reserve will likely act aggressively in interest rate increases, making it more appealing to dollar traders. This further adds to the weakness of the Pound as they flee from riskier assets.

The sterling was 0.7% higher at 84.08 pence against the euro.

Liz Truss, British foreign secretary, stated Tuesday that she would introduce legislation within the next few weeks in order to amend the Northern Ireland Protocol. This protocol was part of the Brexit Divorce Agreement.

A note by ING strategists states that Brexit-related risks surrounding changes to the Northern Ireland Protocol and the possibility of a trade war between the EU and Britain are major downside risks for the pound. They expect the pound to trade below $1.23820 versus USD during the summer.