- The pound has fallen to a record low against the dollar as markets react to the UK’s biggest tax cuts in 50 years.
- In early Asia trade, sterling dropped to $1.03 before climbing back to $1.05.
- If the pound stays at this level against the dollar, imports of commodities and goods will be more costly
Susannah Streeter, senior investment and market analyst, Hargreaves Lansdown:
‘’The pound has been on a fast downwards track of a rollercoaster, plunging to record lows yet again this morning, as confidence in the government’s economic management continues to evaporate. Sterling dipped to $1.03 in Asian trade – a level not registered since Britain went decimal in 1971. The fresh bout of panic appears to have been brought on by rumours that the Bank of England may step in with an emergency rate hike to try and shore up support. But comments by Chancellor Kwasi Kwarteng that he will go even further with historic tax cuts, which are already being criticised as reckless, have added to the anxiety. The worry is that not only will borrowing balloon to eye watering levels, but that the fires of inflation will be fanned further by this tax giveaway, which offers higher earners the bigger tax break.
Sterling’s slide makes imports more expensive so the falls we have seen in oil prices over recent weeks won’t be fully felt at the petrol pumps and hoped for lower food prices will now take longer to materialise. There is now a tense stand-off between the Bank of England and the Treasury, with policymakers determined to try and bring down inflation by dampening down demand, while politicians are focused intently on trying to boost demand and promote their growth agenda. The pound has now stabilised at around $1.05 but all eyes will be on the currency pair as trading begins in Europe this morning. The strength of the dollar is exacerbating sterling’s weakness, with the flight to the safety of the greenback continuing amid worries about a slowing global economy.’’
