Last Friday, the British Chancellor of the Exchequer, Kwasi Kwarteng, announced a significant tax cut in the United Kingdom, one of the largest in half a century. Additionally, the UK government intends to increase spending and borrowing to tackle the country’s rising inflation rate. These measures have had a severe impact, causing a substantial decrease in the value of the UK’s primary currency.
This morning, the British pound plummeted by almost 5% to a value of $1.03 against the US dollar, but later recovered slightly to $1.07 due to investments from European traders. However, there are concerns among investors that the current policies could lead to a complete collapse of the pound’s value, ultimately damaging the British economy.
Graig Erlam, a senior market analyst at Oanda, expressed doubts about the economic competence of the new government. He suggested that there is a high likelihood of a significant emergency interest rate increase by the Bank of England to stabilize the currency and restore confidence in the markets.
The British pound on Monday hit an all-time low against the U.S. dollar amid market concerns about the new government’s plans to boost growth after it unveiled its biggest shake up to the tax system in 50 years.https://t.co/uQoZCGceSz
— The Washington Post (@washingtonpost) September 26, 2022
The substantial tax cuts have been met with criticism from politicians across the political spectrum, with many dismissing them as ineffective trickle-down economics.
Former Tory chancellor Lord Ken Clarke stated on BBC radio, “I’m afraid that’s the kind of thing that’s usually attempted in Latin American countries without success.”
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