Pound Crash: Tax Cut Plans Pull British Pound to 4 Decade Low of 1.0349 Against US Dollar
The British pound has resumed a slide against the US dollar that picked up pace last week after the UK's new government outlined plans to cut taxes and boost spending. The pound dipped as low as USD 1.0349 per US dollar early on Monday but then rebounded to USD 1.0671, down 2.3 per cent.
London, September 26: The British pound has resumed a slide against the US dollar that picked up pace last week after the UK's new government outlined plans to cut taxes and boost spending. The pound dipped as low as USD 1.0349 per US dollar early on Monday but then rebounded to USD 1.0671, down 2.3 per cent.
The tax-cut plan has sparked concerns that increased public borrowing will worsen the nation's cost-of-living crisis. The British currency plunged over 3 per cent on Friday. It's trading at levels last seen in the early 1980s. British Pound Collapse: Here’s Why British Pound Crashed and What It Means for the New Government.
Other currencies have also weakened against the dollar as the Federal Reserve has hiked interest rates to combat inflation. Japan's central bank intervened last week to support the yen, slowing its decline against the dollar.
Treasury chief Kwasi Kwarteng announced the sweeping tax cuts that he said would boost economic growth and generate increased revenue without introducing corresponding spending reductions. He also said previously announced plans to cap soaring energy bills for homes and businesses would be financed through borrowing.
Kwarteng offered few details on the costs of the program or its impact on the government's own targets for reducing deficits and borrowing, but one independent analysis expected it to cost taxpayers 190 billion pounds (USD 207 billion) this fiscal year.
The news triggered the pound's biggest drop against the US dollar since March 18, 2020, when then-Prime Minister Boris Johnson announced the first nationwide lockdown to control the spread of COVID-19. The British currency closed at USD 1.0822 in London on Friday, from USD 1.1255 on Thursday.
Prime Minister Liz Truss, who took office less than three weeks ago, is racing to combat inflation at a nearly 40-year high of 9.9 per cent and head off a prolonged recession. Facing a general election in two years, she needs to deliver results quickly.
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