Sterling fell sharply against the dollar, falling below the symbolic $1.10 level and nearing an all-time low, as announcements made by the Chancellor of the Exchequer earlier today worried investors as the UK may is already in recession.
Against the dollar, which is benefiting from the resilience of the US economy and its “safe haven” status, the pound was down 2.71% at $1.0956 by around 17:40 (Greece time). It is the lowest level sterling has fallen to since 1985, when it hit 1.0520 against the dollar.
The freezing of energy costs for individuals and companies, as well as the tax reduction announced by the new British government with the aim of boosting growth, worries investors. The first measure alone, freezing energy prices, is expected to cost £60bn in the first six months.
“Beginning with Brexit, the Bank of England’s delay in raising interest rates and now fiscal policy, I believe the UK will go down in history as one of the worst macroeconomic managements of a major country in a long time.” commented former US Treasury Secretary Larry Summers, estimating that the pound may even fall to $1.
“Sterling is at risk,” warned George Saravelos, an analyst at Deutsche Bank, noting that the pound is falling even as UK debt rates rise, which is “very rare in advanced economies.” “We are concerned that investor confidence in the UK is rapidly eroding,” he added.
The British economy shows signs of slowing and the Bank of England predicts a recession from the third quarter of the year.
The steep fall of the pound also overshadowed the decline of the euro against the dollar by 1.27%. The euro hit $0.9711, its lowest level since 2002.