Pound stabilizes but stock market turmoil continues for UK economy

0

The pound stabilized in Asian trading on Tuesday after plunging to a record high a day earlier as the Bank of England and the British government tried to appease jittery markets over a volatile British economy.

The instability has started to have repercussions in the real world, with several UK mortgage lenders withdrawing deals amid fears interest rates could soon soar.

The pound was trading around $1.08 on Tuesday morning. On Monday, it plunged to $1.0373, the lowest since the currency’s decimalisation in 1971, on fears that the tax cuts announced by Treasury Chief Kwasi Kwarteng on Friday could inflate public debt and further fuel the crisis. ‘inflation.

On Monday evening, the central bank said it was “watching the markets closely and would not hesitate to raise interest rates at its next meeting in November to rein in inflation which is hovering at 9.9. %.

The UK Treasury also sought to reassure markets, saying it would set out a medium-term fiscal plan on November 23, alongside the economic forecast from the Independent Office for Budget Responsibility.

The statements did little to ease concerns over the government’s economic policies, with the pound remaining well below the $1.12 level it held before Kwarteng’s announcement on Friday.

Some analysts warned that the bank and Treasury statements were too little, too late.

There is no rate hike today and speculators will take advantage of the prospect of two months of Bank of England inactivity if the statement is taken at face value, said Alastair George, strategist Chief Investment Officer at Edison Group.

The government plans to cut 45 billion pounds ($49 billion) in taxes at the same time it spends more than 60 billion pounds to cap energy prices that are causing a cost of living crisis.

Kwarteng and Prime Minister Liz Truss, who replaced Boris Johnson as prime minister on September 6, are betting that lowering taxes and reducing bureaucracy will eventually generate enough additional tax revenue to cover government spending. But many economists say the gamble is unlikely to pay off.

Torsten Bell, who heads the Resolution Foundation, an economic think tank focused on inequality, said markets were looking at the UK government’s plans and saying that was not what serious policy-making looked like.

The world we’re heading into is a bumpy few weeks, he told Sky News. Kwarteng “is going to go through quite a difficult time now as he has now set out plans to balance the books in November. It is going to be very difficult.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Share.

Comments are closed.