The Nigerian naira continued its downward trajectory against the British pound sterling, breaking through the ₦2,180 barrier to trade at ₦2,188/£1 on the black market as of Thursday.
This decline underscores mounting pressure on Nigeria’s currency, despite an improvement in the Central Bank of Nigeria’s (CBN) foreign exchange reserves, which recently reached $40 billion — the highest level under President Bola Tinubu’s administration.
Economists point to a confluence of factors eroding the naira’s value, including weak oil production, fiscal inefficiencies, speculative foreign exchange activities, and a reduced export base.
The naira’s rapid devaluation coincides with broader shifts in Nigeria-UK economic and migration dynamics.
The UK’s Office for National Statistics (ONS) recently reported a rise in its October inflation rate to 2.3%, surpassing market expectations and fueling a rally in the pound sterling.
Core inflation also accelerated, driven by higher energy prices and sustained wage growth. This contributed to the pound’s strengthening against major currencies, including the naira.
Migration trends between Nigeria and the UK have also played a role in shaping forex dynamics. The number of Nigerian students studying in the UK plummeted by 68% in the first half of 2024 due to stricter British immigration policies aimed at reducing international migration.
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Only 4,669 student visas were issued to Nigerian applicants during this period, compared to 14,772 in the same period last year, according to Home Office data. This decline, however, has not significantly eased forex demand, as cultural and historical ties continue to drive Nigerians’ preference for the UK.
Nigeria’s trade relations with the UK, valued at approximately €35 billion last year, reflect a robust partnership.
The country enjoyed a €10 billion trade surplus with the UK, largely supported by oil exports. However, declining oil revenues and constrained production capacity have weakened this position, exacerbating the naira’s fragility.
While the pound sterling has gained against the naira, its fundamentals suggest potential instability.
The UK economy contracted by 0.1% in October, according to ONS data, while GDP growth for the third quarter also fell short of expectations. Analysts argue that these signs of slowing economic activity could limit the pound’s upward momentum in the medium term.
Financial analyst Bola Adebayo attributes the naira’s challenges to a “trifecta of domestic economic mismanagement, global currency trends, and speculative forex activities.”
She notes that while Nigeria’s reserves are improving, the “underlying inefficiencies in forex market management continue to amplify the naira’s vulnerability.”
UK-based economist James Middleton highlights the dual pressures on the pound. “While inflation and wage growth are keeping the pound strong, weak GDP figures and external geopolitical risks, like the ongoing Russia-Ukraine conflict, could temper its strength in the coming months,” he says.
Market watchers believe that barring decisive fiscal reforms, the naira may face further depreciation, potentially testing ₦2,500/£1 in the short term.
Analysts urge the Nigerian government to address structural inefficiencies, enhance export diversification, and tighten fiscal discipline to stabilize the currency.