NOS News•Monday, 20:09
There are major concerns in the United Kingdom about the sharp fall in the pound rate. Never before has the value of the British currency against the US dollar been so low as this morning.
The drop followed the billion-dollar tax cut announced by the new government last Friday. As a result of this controversial package, which mainly benefits the rich, investor mistrust of the ailing British economy has increased further.
Pound almost equal to dollar
Since Friday, the value of the pound has fallen by more than 5 percent compared to the dollar. After the unprecedented low of $1.0373 per pound early this morning, the British currency had risen slightly in the evening to around $1.06.
A falling pound further drives up prices in the United Kingdom, as imports become more expensive. Just like in the Netherlands, more and more Britons are struggling to make ends meet as a result of high food and energy prices.
The central bank, Bank of England (BoE), says it is closely monitoring the crisis situation. The BoE “will not hesitate” to raise interest rates if necessary to curb inflation. Some British media speculated in advance that the central bank might intervene as early as today, but it did not.
Finance Minister Kwarteng says the £45 billion tax cut will lead to economic growth in the long term. As soon as the economy grows due to the tax cut, the money will be earned back, is the reasoning of the new government led by Prime Minister Truss.
But there are concerns that the plan will exacerbate already high inflation. Critics fear that the pound will depreciate even further, causing the British government to spend more money on interest on government bonds.
The depreciation of the pound, but also of other currencies against the dollar, has been going on for some time. At the beginning of March, a pound was still worth $1.35, more than 30 cents more than early this morning.