The British pound fell 5 percent to a record low after the Chancellor of the Exchequer pledged to push for further tax cuts.
Prime Minister Liz Truss’s government has rolled out Britain’s most drastic tax cut package since 1972, slashing wage costs for workers and businesses in a bid to boost the economy’s long-term potential.
Much of the decline in the British currency on Monday was caused by a frenzied sell-off that lasted 20 minutes and sent traders screaming for a sudden crash.
The pound fell to $1.0350, as investors looked to be punishing new Treasury Secretary Quas Quartering for his aggressive growth policies, and was at $1.0487 by 13:00 in Tokyo.
Jessica Amir, strategist at Saxo Capital Markets in Sydney, said the fall in the pound shows that markets do not trust Britain and that its fiscal strength is under siege. The situation is expected to worsen in the coming period.
The pound’s percentage drop on Monday was the biggest since March 2020, while expectations have risen to 63% that the British currency will fall to parity with the dollar this year.
The removal of stamp duty has reduced property purchase costs and guaranteed support for families and businesses facing spiraling energy bills that will cost £60 billion over the next six months.
The aim of the British government’s actions is to prevent an economic recession, which the Bank of England says has begun, and to increase productivity, which has lagged behind other G7 countries and will continue to increase.
Saturday’s Telegraph reported that “TG will face a backlash from Tory MPs against the tax cuts, particularly after the pound’s devaluation, and at the same time, some in the markets are calling for Bank of England (BOE) intervention and emergency measures to prevent the currency from falling.” “
Source: Lebanon Debate