Pound falls to all-time low against US dollar amid fears over UK tax cut plans

The pound has fallen to an all-time low against the US dollar as markets’ confidence in the government’s economic plans was weakened after the Chancellor last week announced the biggest tax cuts in 50 years and announced more.

Sterling hit its lowest level against the dollar since decimalization in 1971, falling more than 4% in early Asian trade to just $1.03 before regaining some ground to around $1.07 early Monday.

The euro also hit a fresh 20-year low against the dollar amid recession and energy security fears ahead of what is expected to be a painful winter across Europe as the war in Ukraine seems to see no end.

Experts warned that the pound’s plunge towards parity with the dollar will push up the cost of goods even further, potentially worsening the cost-of-living crisis while also making it more expensive for the government to borrow money.

Shadow Chancellor Rachel Reeves accused Chancellor Kwasi Kwarteng and Prime Minister Liz Truss of playing recklessly with the UK’s finances.

The Labor MP told Times Radio: “Rather than blaming everyone else, the Chancellor and the Prime Minister, instead of being like two gamblers in a casino chasing a losing streak, they shouldn’t just be paying attention to the reaction in financial markets , but also to the public.”

She added, “They don’t gamble with their own money, they gamble with all our money and it’s reckless and irresponsible and grossly unfair.”

Mr Kwarteng has previously brushed off questions about the markets reaction to his mini-budget – which outlined the biggest program of tax cuts in 50 years – after it was announced on Friday and used more than £70billion in increased borrowing.

He claimed on Sunday that the cuts “benefit people across the income spectrum,” arguing they mostly help the wealthy.

But financial markets remain uneasy, and there are fears the Bank of England may even be forced to intervene with an emergency rate hike to stabilize the pound and curb inflation fueled by the tax cuts.

There is now a tense standoff between the Bank of England and the TreasuryMarket analyst Susannah Streeter

The bank hiked another half a percentage point to 2.25% last Thursday, but financial markets are speculating that it could trade with another move ahead of its next scheduled meeting in November, which will also affect household mortgage lending would.

Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, said: “Chancellor Kwasi Kwarteng’s comments that he will go further with historic tax cuts, which are already being criticized as reckless, have added to concerns.

“The concern is that not only will credit expand to staggering levels, but that inflation will be fueled further by this tax gift that gives higher earners the bigger tax break.”

The fall in the pound makes it more expensive to import goods and commodities such as food, clothing, oil and gas.

It’s also seeing a rise in the cost of borrowing in the UK – last week they rose the most in a single day in at least a decade after the mini-budget as it impacted government bonds.

“There is now a tense standoff between the Bank of England and the Treasury, with policymakers determined to try to lower inflation by dampening demand, while policymakers are intensely focused on stimulating demand and their driving the growth agenda,” he told Ms. Streeter.

Mr Kwarteng and Ms Truss have defended their growth plans, although analysis suggests the measures, which include removing the top income tax rate for the highest earners, will only boost the incomes of the wealthiest households, while most people will be worse off.

Three days after his financial statement, the Chancellor indicated that his announcements were only the beginning of the government’s agenda aimed at reviving the UK’s sluggish economy.

Mr. Kwarteng and Ms. Truss could continue their spree in the new year with possible further cuts in income tax and the easing of immigration and other regulations.

https://www.belfasttelegraph.co.uk/news/uk/pound-falls-to-all-time-low-against-us-dollar-amid-fears-over-uk-tax-cut-plans-42016632.html Pound falls to all-time low against US dollar amid fears over UK tax cut plans


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