The British pound reached a record low against the U.S. dollar on Monday morning, as the currency has lost more than five percent of its value over the past three days.
The pound fell to $1.0373, its lowest level vs the dollar since 1971, before rebounding above $1.09.
The fall is a result of the British government’s decision to implement the largest tax cuts in the past fifty years.
In addition to investing further billions to assist individuals and businesses coping with high energy bills as a result of the epidemic and the ongoing conflict in Ukraine, the government aims to reduce taxes by 45 billion pounds, or $49 billion.
According to The Washington Post, investors predict that US travel to the United Kingdom and Europe will increase as a result of this record-setting decline and the euro’s 20-year low of $0.95.
Prime Minister Liz Truss, 47, anticipates a turnaround in the economy.
Truss stated, “The United Kingdom has the lowest debt levels among the Group of Seven, but one of the highest tax rates.” And what I’m determined to do as prime minister, and what the chancellor is determined to do, is to ensure that investment incentives are in place for businesses.
The pound sank to a record low on Monday before recovering to surpass $1.09, resulting in a 5 percent decline in value over three days.
The currency’s decline is due to the UK’s largest tax cuts in fifty years, as well as increased spending costs.
The collapse of the pound matches that of the euro versus the U.S. dollar, which went as low as $0.95.
Chancellor of the Exchequer Kwasi Kwarteng, age 47, is pictured. Kwarteng reports that the British government will cap electricity and natural gas prices in response to the currency’s decline.
As a result of the pound’s long-term decline, British exports are now cheaper for foreign consumers, such as those in the United States, and overseas sales for export-oriented industries are projected to increase.
While non-British customers view the depreciation of the pound to be a positive development, British households are experiencing increased energy costs and a near 40-year high in inflation.
The current rate of inflation is 9.9 percent, down from 10.0 percent the previous month.
Other economists predict that the combination of reduced taxes and higher expenditure will continue to weaken the pound and boost inflation.
Rachel Reeves, the economic spokesperson for the Labour Party, stated that Kwarteng had “fanned the fires” of instability.
Reeves told Times Radio, “They are not playing with their own money; they are gambling with all of our money, which is reckless, irresponsible, and horribly unfair.”
Kwasi Kwarteng, Chancellor of the Exchequer, stated to the BBC, “We’ve just been in office for 19 days.”
I want to see a rise in income retention over the next year because I believe that it is the British people who will drive this economy.
Thomas Pope, an economist at the Institute for Government, remarked, “In the current economic climate, it is a massive gamble.”
Investors and economists anticipate an increase in U.S. tourism to Europe as a result of the decline and the euro’s corresponding decline.
Premier Liz Truss is shown with Kwarteng.
Truss stated, “The United Kingdom has the lowest debt levels among the Group of Seven, but one of the highest tax rates.”
Kwarteng told the BBC that a proposal to lower the national debt is likely in the near future.
Kwarteng stated that the government will impose a cap on electricity and natural gas pricing for enterprises, a measure that will both curb price increases and cost sixty billion pounds.
Britain will be able to afford this because its debt-to-GDP ratio is second-lowest among the Group of Seven, which consists of the United Kingdom, Italy, Germany, Canada, Japan, France, the United States, and the European Union.
In the near future, a plan to cut debt will be announced.
Kwarteng stated, “Obviously, I will lay out proposals for the so-called medium-term fiscal plan, which will demonstrate our commitment to the debt-to-GDP ratio lowering over time.”
According to analysts, it is uncertain how low the pound or euro could fall against the dollar.
Susannah Streeter, a senior analyst at Hargreaves Lansdown, told the Associated Press, “It now rests on what the Bank of England does in response to sterling’s most recent decline.”
There has been a tremendous loss of confidence in the government’s management of the economy. But now the Bank of England has the initiative.