During the previous week, British Chancellor of the Exchequer Kwasi Kwarteng revealed a substantial tax reduction for the United Kingdom, marking one of the most significant cuts the nation has witnessed in at least five decades. Furthermore, the UK government intends to enhance its spending and borrowing strategies to combat the escalating inflation rate. This combination of measures has resulted in a detrimental ripple effect, significantly reducing the worth of the UK’s main currency.
This day, the British pound plummeted by almost 5% to reach a US dollar valuation of $1.03, although it experienced a minor recovery due to investments from European traders pushing it up to $1.07. Nevertheless, investors express apprehension that the prevailing policy mix could potentially trigger a complete devaluation of the pound, subsequently wreaking havoc on the British economy.
“There are already serious concerns about the economic proficiency of the new administration,” remarked Graig Erlam, Oanda’s senior market analyst. “To such an extent that markets are considering a high likelihood of a significant emergency interest rate increase from the Bank of England to stabilize the currency and restore market confidence.”
Market fears around the new government’s initiatives to foster growth following the unveiling of the most extensive tax reform in half a century plunged the British pound to a historic low against the U.S. dollar on Monday.https://t.co/uQoZCGceSz
— The Washington Post (@washingtonpost) September 26, 2022
The substantial tax reductions have not been well-received by politicians from both ends of the spectrum, with many dismissing it as yet another version of trickle-down economics.
“Regrettably, that’s the sort of approach typically attempted in Latin American nations without achieving success,” Former Tory chancellor Lord Ken Clarke remarked on BBC radio.
