“Currency doesn’t equal economy,” says Jeffrey Kleintop, chief global investment strategist at Schwab. imports.īut a weak pound has mixed implications for Americans. That’s in large part due to a series of interest rate increases from the Federal Reserve.įor consumers in England and beyond, the loss of exchange value against the USD could mean even higher prices for energy and other U.S. While the GBP faces instability, the U.S. fixes the fiscal issue, the pound may continue to move lower, longer-term,” says Perry. But the bigger picture is still uncertain. Joseph Perry, market analyst at, says the BOE is already taking corrective measures to increase the value of the pound in the short-term. Whether or not that will happen depends on the U.K.’s fiscal policy response in the coming months. In the meantime, some economists are projecting that GBP could reach parity with the dollar-a major shift after decades of averaging around $1.50 USD. But the BOE’s next meeting is not scheduled until November 3 and Kwarteng isn’t slated to publish his medium-term fiscal plan until November 23. In a statement from the Bank of England (BOE), bank Governor Andrew Bailey said that policymakers are prepared to further adjust interest rates in order to address the fall of the sterling. The Growth Plan also fails to outline how the tax cuts will be funded-an omission leading some to speculate that Britain will fall further into a cycle of debt and borrowing.Ĭhancellor Kwarteng further stoked those fears by blocking the country’s independent budget watchdog, the Office for Budget Responsibility (OBR), from releasing an economic forecast based on the plan. “Injecting demand into this high-inflation economy leaves the government pulling in the exact opposite direction to the Bank of England, who are likely to raise rates in response,” said the U.K.’s Institute for Fiscal Studies (IFS) in its response to the plan. “Lower taxes lead to economic growth, there is no doubt in my mind about that,” Truss said, just before the economic plan was announced.īut the Growth Plan threatens to amplify inflation by putting more cash into consumers’ hands and increasing their demand for goods and services. It includes income tax breaks that favor the nation’s highest wage earners, and the plan scraps a scheduled increase in corporate taxes. The 2022 Growth Plan makes good on new Prime Minister Liz Truss’s campaign promise to cut taxes. Why Is the Pound Falling?Ĭhancellor Kwarteng’s announcement signaled an alarming reversal in economic policy, one that frightened traders and investors and caused a drop in the value of the pound. consumers, the shift in currency values could have different implications. While the pound has since slightly recovered from its drop, Kwarteng’s announcement sparked fears that England will soon face worsening inflation and accelerate toward a recession. The GBP dip came just days after Britain’s newly appointed chancellor, Kwasi Kwarteng, announced the new administration’s 2022 economic Growth Plan, which is set to include the country’s most sweeping tax cuts in 50 years. The pound fell to $1.03 on September 26, hitting an all-time low against the U.S.
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