Pound drops to new 37-year low after tax cut mini-budget was plotted

The pound plunged to a new 37-year low as the chancellor dropped tens of billions of pounds tax cuts and spending.

Equity markets were also particularly gloomy, with the FTSE 100 falling to its two-month low.

Sterling fell as much as 0.89% to 1.115 US dollar as Quasi Quarteng spoke to Parliament at 9.30 am on Friday.

It has since stabilized at around $1,119, but remains below the previous 37-year low reached earlier this week as concerns about rising interest rates hit the currency.

It comes after the Bank of England launched another 0.5 percentage point rate hike to 2.25% on Thursday, warning that the UK could already be in recession.

The central bank previously predicted the economy would grow in the current financial quarter, but now said it believes gross domestic product (GDP) will fall by 0.1%, meaning the economy would have seen two consecutive quarters of decline. – the technical definition of a recession.

Economists had warned that the Chancellor’s tax-cutting ambitions could put further pressure on the pound, which was also impacted by the strength of the US dollar.

Former Bank of England policymaker Martin Weale warned that the new government’s economic plans “will end in tears” – with a run on the pound in an event similar to the one in 1976.

Economists at ING also warned Friday that the pound could fall further to 1.10 against the dollar amid difficulties in the gold market.

Chris Turner, Global Head of Markets at ING, said: “Typically, a looser fiscal and tighter monetary policy is a positive mix for a currency, provided it can be financed with confidence.

Here’s the problem: investors have doubts about the UK’s ability to fund this package, hence gold’s underperformance.

“Now that the Bank of England has committed to winding down its gold portfolio, the prospect of indigestion in the gold market is real and should keep pound sterling vulnerable.”

Meanwhile, concerns about higher interest rates and pressure on consumer spending continued to weigh on the stock market.

The FTSE 100 fell 1.48% to 7,054.64 points in early trading, its lowest level since mid-July.

This is a latest news item and will be updated.

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