British pound drops to record low against dollar: As a result of the markets’ response to the UK’s largest tax cuts in 50 years, the pound has reached a record low against the dollar. Sterling dropped almost to $1.03 in early Asian trading before reclaiming some ground to hover around $1.07. In anticipation of a rise in borrowing, Chancellor Kwasi Kwarteng has promised additional tax cuts on top of the £45 billion plan he announced.
British pound drops to record low against dollar: Key Points
- The cost of borrowing money from the UK government also increased.
- If the pound stays this low versus the dollar, imports of goods like oil and gas that are priced in dollars will be more expensive.
- Additionally, other imported commodities may become significantly more expensive, driving up inflation, which is already running at its highest rate in decades.
- In addition, there are worries that the government’s plans to borrow billions and slash taxes will fuel rising inflation and drive the Bank of England to boost interest rates even higher.
- Millions of homeowners would have higher monthly mortgage payments as a result.
- The pound has been affected by concerns about the UK economy, but the pound has also seen pressure from the dollar’s surge.
- Other currencies have been losing ground to the dollar, and amid worries about the possibility of a recession, the euro hit a new 20-year low against the US currency.
UK’s largest tax cuts: Predictions for the British Pound
- The Bank increased interest rates last week by.25% to 2.25% in an effort to lower inflation, which is at a 40-year high of 9.9%.
- The rate rise, which brought rates to their highest level in 14 years, was the eighth in a row.
- Some analysts, however, have hypothesised that the Bank may call an emergency meeting this week to raise interest rates once more.
- A statement from the Bank of England was declined.
- Interest rates may rise as high as 5.5 percent by the spring of next year, according to market observers.