The British pound fell to an all-time low against the dollar as markets reacted to the UK’s biggest tax cuts in 50 years.
The pound fell more than 4% to $1.0327 early Monday morning before stabilizing around $1.06. This steep fall occurred just as trading opened in Asia/Australia, which extended a nearly 2% drop from Friday. These developments fuelled fears that the pound will continue to fall to parity to the US dollar.
The pound will continue to be at a low level against the dollar and imports of commodities like oil and gas that are priced in dollars will become more expensive. British tourists visiting the US will find their money doesn’t go as far as before. In other words, you’ll pay more to buy anything overseas.
This trend will benefit US production companies who wish to shoot in the UK, as it will lower costs. However, it will hurt U.K. buyers, who must purchase content in dollars. It’s bad news for UK PLC.
Experts suggest that the Bank of England might raise interest rates to support sterling’s fall.
The historic slump follows British Chancellor Kwasi Kwarteng’s announcement on Friday that the UK would unleash the biggest tax cuts in 50 years and an unprecedented increase in borrowing to pay for them.
Kwarteng described the plans as “a” “new era”A planned increase in corporation taxes for the UK economy has been scrapped. Income tax and stamp duty on home purchases will also be cut, and the top rate of income tax of 45% for people earning over £150,000 a year has been binned.
Rachel Reeves, Labour shadow chancellor, described the cuts as “incredibly concerning” during an interview on the BBC’s Today radio show.
“I think many people had hoped over the weekend things would calm down,”She said: “but I do think the chancellor sort of fanned the flames on Sunday in suggesting there may be more stimulus, more unfunded tax cuts, which has resulted overnight in the pound falling to an all-time low against the dollar.”