“Fear of recession causes sterling to bottom”

“Fear of recession causes sterling to bottom”

Economy26 Sep 22 17:36Modified on 29 Sep 22 at 13:51Autor: Heidi van Slooten

The British pound reached its lowest level against the US dollar. Today, the British currency fell by at least 4 percent to $1.03, the lowest level ever. This decrease came as a result of the tax plans announced by the new British Finance Minister, Kwasi Kwarteng, on Friday.

Han De Young talks about the economic situation in the United Kingdom

Fears of a UK recession have seen the pound fall to an all-time low as a result of Finance Minister Kwasi Kwarteng's tax plans. (Afghan National Police/AFP)

“High-income people mainly benefit from Kwarting plans,” says economist Han de Jong. The lowest earners would get a tax cut of 20 to 19 percent, but the top tax rate would be eliminated entirely. After these plans, income exceeding one and a half euros will pay only 40% instead of 45% in tax on the last part of its income.

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“This plan is a gamble with public money.” “They hope to achieve economic growth through tax cuts, but if not, there will be big gaps in government finances,” says De Jong.

There is a huge fear of recession in the UK. A low level of the pound means higher import costs, which only leads to higher inflation. “It will become more expensive.”

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Intervention

The British central bank is still considering whether to intervene due to the historically low value of the British pound. According to sources from Bloomberg News, the Bank of England (BoE) is closely monitoring developments. Economists are considering an early rate hike to help the currency and government bonds.

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Financial markets are factoring in a 2 percentage point hike in November, which would nearly double the interest rate to 4.25 percent. Last week, the Bank of England announced a half-percentage-point increase to combat high inflation.

Read also | The value of the pound sterling falls to a record low against the dollar

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