A strong drop is recorded by sterling against the dollar, falling below its symbolic threshold as well $1.10 and approaching its historic low, as the announcements made earlier today by the Minister of Finance worry investors, at a time when the United Kingdom may already be 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.
Freezing energy costs for individuals and companies, but also the tax cut announced by the new British government aimed at boosting growth is worrying investors. Only the first measure, freezing energy prices, is expected to cost 60 billion pounds 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 great country for a long time,” commented former US Treasury Secretary Larry Summers, estimating that the pound could even fall to $1.
“Sterling is at risk,” warned George Saravelos, an analyst at Deutsche Bank, noting that the pound falls even as interest rates on British debt rise, which is “very rare in developed 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.