British Pound Plunges To Record Lows
By Stefan J. Bos, Chief International Correspondent Worthy News
LONDON (Worthy News) – The British pound plunged to an all-time low against the U.S. dollar Monday as investors ran for the exits after the new government’s fiscal plan threatened to stretch Britain’s finances to their limits.
Within record tempo, the currency fell some 5 percent, to as low as $1.0373, before rallying to $1.0672 in early London trading.
It was at its lowest level since the decimalization of the currency in 1971. It extended the dive from Friday when finance minister Kwasi Kwarteng unleashed historic tax cuts and the biggest increase in borrowing since 1972 to pay for them.
It comes as Europe struggles with high energy and food prices, linked partly to the war in Ukraine.
However, economists and investors said Prime Minister Liz Truss’s government, in power for less than three weeks, was losing financial credibility.
They suggested it was unwise to
present such a plan just a day after the Bank of England hiked interest rates to contain surging inflation.
CAPPING PRICES
However, Kwarteng claimed his government was acting responsibly. “There’s more to come,” he said. “We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it is the British people that are going to drive this economy.”
As it is cutting taxes, the government plans to cap electricity and natural gas prices for homes and businesses to help cushion price rises.
The government said the hikes were triggered by Russia’s invasion of Ukraine and sent inflation to near a 40-year high of 9.9 percent.
This program will cost 60 billion pounds, and the government will borrow to finance it, Kwarteng confirmed Friday, spooking markets.
Across the sea in continental Europe, the countries participating in the eurozone also face economic turmoil as the euro has fallen to a 20-year low, trading at 0,97 for the dollar early Monday.
That is threatening to inflict further pain on an economy that’s already having to contend with a surge in inflation. And analysts fear the common currency’s slide may not stop here.
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