The pound dropped to a fresh 37-year low against the dollar as the chancellor unveiled tens of billions of pounds of tax cuts and spending. Sterling declined by 0.89 per cent to 1.115 US dollars as Kwasi Kwarteng outlined his “growth plan” for the UK economy. It has since stabilised at about 1.119 dollars, but this remains below the previous 37-year low struck earlier this week after concerns over surging interest rates hit the currency.
It comes after the Bank of England launched another 0.5 percentage point interest rate hike to 2.25 per cent recently and warned the UK could already be in a recession. The central bank previously projected the economy would grow in the current financial quarter but said it now believes Gross Domestic Product (GDP) will fall by 0.1 per cent, meaning the economy would have seen two consecutive quarters of decline – the technical definition of a recession.
The chancellor set out his first “mini-Budget” at a time when the UK faces a cost-of-living crisis, recession, soaring inflation and climbing interest rates. The 45p income tax rate paid by Britain’s highest earners will be axed, in the biggest surprise in Kwarteng’s plan.
The chancellor also accelerated a planned 1p cut in the basic rate – from 20p to 19p – which will now come into force next April. Meanwhile, concerns over higher interest rates and pressure on consumer spending continued to weigh on the stock market.