Pound
Why Pounds Sterling Plunged to a 37-Year Low
Global economic uncertainty amid the decision to cut tax by over 50% despite the rising inflation rate has plunged the Pounds Sterling to a 37-year low against the United States Dollar on Monday.
Global economic uncertainty amid the decision to cut tax by over 50% despite the rising inflation rate has plunged the Pounds Sterling to a 37-year low against the United States Dollar on Monday.
On Friday, the new U.K. Chancellor, Kwasi Kwarteng announced the biggest tax cuts in 50 years and on Monday said he will keep cutting taxes to put money in the pocket of the people, support businesses and grow the economy, Investors King understands.
This, he planned to achieve by reducing government revenue via tax and simultaneously increase the money circulation despite the country’s 9.9% inflation rate in August.
He argued that increased growth would eventually compensate for the drop in revenue in the long term. He further stated that the almost £45 billion expected to be cut off from the nation’s tax revenue through 2027 under his policy would “turn the vicious cycle of stagnation into a virtuous cycle of growth”.
“We need a new approach for a new era, focused on growth,” he stated.
Global currency traders immediately started relinquishing their holdings of the Pounds Sterling for the United States Dollar and other currencies to avoid impending doom expected to hit the British Pound in the days ahead.
It is impossible to grow the economy as predicted by Kwarteng when prices of crude oil and other commodities remained high due to Russia’s invasion of Ukraine.
Also, with the United States Dollar trading at 1.1031 to the Pounds Sterling after plunging to 1.03325 on Monday, the cost of importing goods from the United States and buying goods quoted in U.S. Dollars will impact whatever money the Chancellor plans to put in the pocket of British people.
Similarly, exports from the United Kingdom would be cheaper for holders of foreign currencies and affect the profit of export-dependent businesses.
Basically, global investors are worried external factors would disrupt U.K policy given the current global happenings. Experts have started predicting that inflation could jump above 10.1% recorded in July, except the Bank of England called an emergency meeting ahead of the scheduled November 3 policy meeting to raise interest rates to curb jump in inflation predicted to result from Kwarteng policy.