British pound falls hard against the dollar after government
The slide may be good news for the many American tourists who visit here and suddenly find their dollars going much further. The U.S. dollar is in strong position, after a series of interest rate hikes by the Federal Reserve.
It is anxiety-producing, however, for many British households, which were already facing soaring energy bills and inflation running at 10 percent. They may soon confront higher costs for imported goods and services, including everything from fuel for vehicles to food on plates.
Britain was able to put on a show for the world last week, with an elaborate state funeral for Queen Elizabeth II. But now financial and economic concerns are front-and-center once more. And the honeymoon for Prime Minister Liz Truss — just three weeks into the job — is decidedly over.
While Truss had pledged tax cuts during her leadership campaign, the scale of the cuts still shocked many economic observers.
“In the current economic environment it is a huge gamble,” wrote Thomas Pope, an economist with the Institute for Government.
On Friday, Kwasi Kwarteng, the new chancellor of the exchequer, or finance minister, announced a package of cuts worth 45 billion pounds ($48 billion) — amounting the biggest shake-up to the British tax system in 50 years.
It is also a major shift away from the policies of Truss’s predecessor, fellow Conservative Party member Boris Johnson, who last year announced tax increases to help cover the costs of the pandemic.
Under Truss, the government has slashed the top income tax rate of 45 percent for those making more than 150,000 pounds ($160,000) a year and scrapped the cap for banker bonuses — moves that will predominantly help more-affluent citizens in hopes they will increase their spending.
In a broader-reaching measure, the government will cap energy bills starting in October — at a cost of 60 billion pounds for six months.
The pound slump raised the prospect that the Bank of England might intervene to shore up the currency. But the central bank declined to pursue an emergency interest rate hike on Monday.
The Bank of England said it was “monitoring developments in financial markets very closely in light of the significant repricing of financial assets.”
In a statement, the central bank said its monetary policy committee would make a “full assessment” of the impact of the government’s actions and the pound’s drop at its next meeting, which is scheduled for November.
British pound falls hard against the dollar after government