LAST UPDATE: 20:06
The British pound (sterling) fell against the dollar on Friday, sliding to fresh 37-year lows, as investors worried about the outlook for the British economy in an environment shaped on the one hand by successive rate hikes by the Bank of England and by another is the huge tax cuts announced today, combined with increased spending to deal with the energy crisis.
The pound continues to slide, and has reached intra-day losses 3.5%slipping below the $1.09 level as well, at $1.0863in the UK currency’s biggest daily drop since March 2020, when the global coronavirus pandemic broke out.
The country’s central bank on Thursday made its seventh rate hike since December 2021 as it continues to try to tame inflation. The latest increase took the key rate to 2.25%, with inflation climbing to 9.9% against the bank’s target of 2%.
The price rally forces the bank to further hike interest rates in the coming period, which is expected to intensify the pressure on the already weak growth rates of the British economy. British GDP fell 0.1% in the second quarter of the year, according to the initial estimate from the National Statistics Office.
Pressure on the currency intensified after the announcement of the government’s new plan to stimulate growth, with tax cuts.
THE the country’s finance minister outlined a plan which provides, among other things, for the cancellation of increases in corporate taxes and the reduction of the highest rate of personal taxes. The Treasury announced at the same time that the cost of the package would be financed by additional bond sales of £62 billion.
The announcement sparked fresh pressure on the country’s bonds, with the two-year yield jumping 40 basis points to 3.89% and the 10-year yield jumping 31 basis points to 3.80%, a new 12-year high, from just 2.6% a month ago.
When asked on Friday afternoon about the collapse of the pound, British finance minister Quazi Kurteg limited himself to stating: “He does not comment on market movements.”