Tax-Cut Plan Pulls British Pound to 40-Year Low Against US Dollar

By Staff, Agencies

The British pound has resumed a slide against the US dollar after Britain’s new government outlined plans to cut taxes and boost spending.

It dipped as low as $1.0349, its lowest ever, early on Monday but rebounded to $1.0671. It is currently trading at levels last seen in the early 1980s.

The government’s tax-cut plan has sparked concerns that increased public borrowing will worsen the nation’s cost-of-living crisis.

This is the pound’s biggest drop against the US dollar since March 18, 2020, when then-Prime Minister Boris Johnson announced the first nationwide lockdown to control the spread of COVID-19.

It closed at $1.0822 in London on Friday, from $1.1255 on Thursday.

Prime Minister Liz Truss, who took office less than three weeks ago, is racing to combat inflation, which is at a nearly 40-year high of 9.9 percent, and head off a prolonged recession. Facing a general election in two years, she needs to deliver results quickly.

Treasury chief Kwasi Kwarteng recently announced sweeping tax cuts he said would boost economic growth and generate increased revenue without introducing corresponding spending reductions.

He also said previously announced plans to cap soaring energy bills for homes and businesses would be financed through borrowing.