British Pound Falls to Record Low Against US Dollar After Tax Cut Plans

UK Chancellor of the Exchequer Kwasi Karteng arriving in Downing Street, London, on Sept. 7, 2022. (Victoria Jones/PA Media)

The British pound has plunged to an all-time low against the U.S. dollar after the UK government announced a massive tax-cutting programme, which is the biggest in 50 years.

Sterling fell by more than 4 percent to just 1.03 dollars in early Asia trading before it regained some ground to about 1.07 dollars early on Monday.

Experts warned the pound’s plunge towards parity with the dollar will send the cost of goods soaring even higher, potentially worsening the cost-of-living crisis, while it also means it will be more expensive for the government to borrow money.

Prime Minister Liz Truss’s new government on Sept. 23 unveiled the biggest package of tax cuts in half a century, aimed at spurring growth in the UK economy.

But opposition parties have accused the government of recklessly gambling with the UK’s finances.

UK Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, England, on Sept. 23, 2022. (Dylan Martinez - WPA Pool/Getty Images)

Market Jitters

Using more than £70 billion ($75 billion) of increased borrowing, Chancellor Kwasi Kwarteng cancelled a planned increase of corporation tax, abolished the top rate of income tax for the highest earners, brought forward a planned cut to the basic rate of income tax, and reduced stamp duty for homebuyers.

The chancellor’s announcement came one day after the Bank of England increased the cost of borrowing by a further 0.5 percent, but he gave no detail regarding how to reduce the UK’s debt as a percentage of GDP, saying the plan would be published in a medium-term fiscal plan “in due course.”

Business leaders welcomed Kwarteng’s so-called mini-budget, but it was seen by critics as a huge gamble as they feared the government is pushing up public borrowing to unsustainable levels.

Following the announcement, investors dumped short-dated British government bonds as fast as they could, causing the pound to slump.

Kwarteng spooked markets further on Sunday by saying there was “more to come” on tax cuts.

‘Incredibly Concerning’

Labour’s shadow chancellor Rachel Reeves described the falling values of sterling as “incredibly concerning.”

She told the BBC on Monday that the overnight fall resulted from Kwarteng’s suggestion of “more unfunded tax cuts,” which she said “fanned the flames.”

Talking to Times Radio, Reeves compared Truss and Kwarteng to “two gamblers in a casino chasing a losing run,” adding that their behaviour has been “reckless” and “irresponsible.”

Downing Street has declined to comment on the dramatic fall in the pound.

The prime minister’s official spokesman said on Monday: “The UK with the second lowest debt-to-GDP ratio in the G-7 is investing in its future. That’s through a growth plan while remaining fiscally responsible and committed to driving down debt in the medium term.

“The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus.”

PA Media contributed to this report.