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After Treasury Secretary Kwasi Kwarteng promised a comprehensive package of tax cuts early on Monday, the British pound hit a record low versus the US dollar. This heightened concerns about the government’s economic strategy as the UK teeters on the brink of recession.
Early on Monday, it fell as low as $1.0349 before rising to $1.07.
Concerns have been raised about how the UK government’s new tax-cut plan could worsen the country’s affordability crisis due to higher public borrowing.
This occurs after the pound fell more than 3% on Friday, reaching lows last seen in the early 1970s.
Last week, Treasury Secretary Kwasi Kwarteng made broad tax cuts public, claiming they will stimulate economic growth and increase income without causing comparable spending cuts.
He added that borrowing would be used to pay already stated initiatives to limit skyrocketing energy bills for homes and companies.
Kwarteng provided few data regarding the program’s costs or its effects on the government’s own aims for decreasing borrowing and deficits, but one unbiased estimate predicted that it will cost taxpayers €210 billion this fiscal year.
The announcement led to the largest decline in the value of the pound relative to the dollar since then-Prime Minister Boris Johnson declared the first statewide lockdown to stop the spread of COVID-19 on March 18, 2020.
In London, the British pound finished at $1.0822 on Friday, down from $1.1255 on Thursday.
Prime Minister Liz Truss, who only recently assumed office, is attempting to stop inflation from reaching a nearly 40-year high of 9.9% and a protracted recession.
She has two years until a general election, so she must act rapidly.
A potential perfect storm of economic headwinds, according to some analysts, might result from the newly revealed mini-budget, which they claim is more likely to increase already high inflation, weaken the pound, and increase the cost of U.K. government borrowing. Many nations are worried about the recent increase in the value of the US dollar relative to other currencies. It reduces earnings for American businesses doing business abroad and puts financial strain on much of the developing world.