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The British Pound is not alone in its slump against the United States Dollar as other currencies including the Euro are also recording a similar faith.
The British Pound Sterling is buckling under the weights of economic pressures and has slid to as low as $1.1029 at 12:20 p.m. London time. The slump came hours after the new government of the United Kingdom announced an encompassing tax cut policy to help businesses in the country cushion the impacts of inflation.
The New Rate Figures in the UK
As announced by the government, the proposed corporation tax that was scheduled to be increased to 25% will now be kept at 19%. The government has also scaled back its recently introduced 1.25% tax hike in the National Insurance Contributions as well as the reduction in the basic rate of income tax from 20 pence to 19 pence.
The government believes the economy will receive the needed prop for growth with significant cuts to stamp duty, a tax paid on home purchases, as well as the cancellation of the 45% tax paid on incomes over £150,000 ($166,770), taking the top rate to 40%
Charting the Pathway for Growth
The introduced tax cuts sent the Pounds tumbling. The drop in the Pound is the lowest it has recorded against the US Dollar since 1985, and it emphasizes how much of a headwind the British economy is facing. Finance Minister Kwasi Kwarteng, addressed members of the House of Commons that the government wanted to create a new pathway that can guarantee growth.
According to him, the government is targeting a medium-term growth rate of 2.5%, a projection that seems quite stiff for a country currently close to slipping into recession. Topping this, the Bank of England recently pushed the interest rate by 50 basis points, further igniting the likelihood of the recession coming in faster.
While the cross-agency boost from the government headed by Prime Minister Liz Truss is intended to interest investors and stakeholders, the market remained generally skeptical of the moves.
Jane Foley, senior FX strategist at Dutch bank Rabobank affirmed the skepticism noting that the government’s 2.5% growth target is “unashamedly designed to boost demand.”
“The obvious implication is that BOE rates are likely to be higher for longer than they would have been otherwise. While textbooks suggest that higher short-term interest rates should be currency supportive, GBP has been demonstrating since the spring that this is not always the
case,” she said in a note.
Many economic metrics are impacting the outlook of the Pound including the hit of a record debt-to-GDP ratio, a marker that casts doubts on investors’ minds on the ability of the government to manage debt.
British Pound is Not Alone
The British Pound is not alone in its slump against the United States Dollar as other currencies including the Euro are also recording a similar faith. As reported earlier by Coinspeaker, the Euro has also plunged to its 20-year low, exacerbating the economic woes of the European Union.
Besides the Pound and the Euro, other major currencies are also losing their value to the dollar in a sweeping period of global economic unrest.