Britain’s pound plunged to an all-time low early on Monday as international investors reacted to plans laid out by the country’s new prime minister and finance minister to slash taxes and ramp up spending to cushion soaring energy prices. This is coming as investors punished UK assets after the government announcement last week.
On Friday, finance minister Kwasi Kwarteng announced he was scrapping the country’s top rate of income tax and cancelled a planned rise in corporate taxes. All on top of a hugely expensive plan to subsidise energy bills for households and businesses.
British government bonds prices have been under pressure for months, hurt by higher inflation and rising U.S. and Bank of England rates, but their fall accelerated massively on Friday after new finance minister Kwasi Kwarteng promised tax cuts.
Sterling declines are partly due to dollar strength. The dollar index, which tracks the greenback against six peers hit a new 20year top of 114.58 in early trade. While euro fell to its own 20-year low on the dollar on Monday briefly hit 92.29 early in the day, its highest since late 2020.
The currency fell as low $1.0327 at one point. It has fallen almost 8% since Thursday and 21% since the start of the year, a pace drawing comparisons with the currency crises that have marked Britain’s post-war history. Below are key episodes timelines of UK currency drama since world war II.
- 1967 Devaluation
- 1976 IMF Crisis
- 1985 Super- Dollar
- 1992 Black Wednesday
- 2016 Brexit Vote