The British Pound hits a record low against the US dollar as a market reaction to the UK’s biggest tax cut in five decades. Here’s all you need to know.
Record low against the dollar
The British pound crashed against the US dollar on Monday amidst growing fears of the nation’s stability. The slump follows British Chancellor Exchequer Kwasi Kwarteng’s announcement of tax cuts. The new measures include scrapping plans and increasing corporation tax. The move is criticized as “trickle-down economics” by the opposition.
“Serious questions are already being asked about the economic competency of the new government. So much so that markets are factoring in a strong chance of a substantial emergency rate hike from the Bank of England to shore up the currency and confidence in the markets,” stated Craig Erlam. Erlam is a senior market analyst at Oanda Additionally, on Monday, the cost of the UK‘s government borrowing rose. Interest rates for borrowing of over two and five years reached percent. The rates are the highest since the financial crisis in 2008.
Fall of the Pound: Why does it matter?
Investors around the world trade in foreign currency and the rate at which they do determines what rates people get at exchanges and banks. In addition to exchange rates, the pound’s fall also affects everyday household finances. If the currency is worth less, the cost of importing increases. Additionally, technology developed abroad may get more extensive in the US. “I’m sure they very much don’t want to do that… because that is a sign of pressure. (https://flossdental.com/) Emergency meetings are avoided if at all possible and I am sure they will try to avoid it,” stated Sir John Gieve. Sir Gieve is a former Bank deputy governor.
“I would be tempted to announce an extra meeting in a week. The argument for waiting a week would be to give them time to properly assess the extra news. The reason for not waiting until November is that they are cognizant of the need to respond in a timely basis to the new developments,” stated Sushil Wadhwani. Wadhwani is a former member of the rate-setting committee of the Bank of England. “Of course, the Bank of England taking action is a second-best solution. The first would also involve the chancellor coming up with a credible fiscal plan which is blessed by the Office for Budget Responsibility,” he added.
