HomeFinancial MarketsSterling Weakens Ahead of British Tax Cuts

Sterling Weakens Ahead of British Tax Cuts

The British pound fell by 0.6% to $1.1170 on Friday; its lowest level against the US dollar since 1985. The currency remained stable against the euro at 87.40 pence per euro. This comes ahead of an expected announcement of a decline in British tax rates.

Britain’s new finance minister is expected to announce on Friday tax cuts and energy subsidies of up to 200 billion pounds ($225 billion). Chancellor Kwasi Kwarteng, the developer of these policies, hopes that they will boost growth and break a “cycle of stagnation”. Kwarteng is expected to address the British parliament at 0830 GMT on Friday morning.

Derek Halpenny, head of research at MUFG, observed that such policies may lead to further weakening of the pound, while Bank of England policymaker Jonathan Haskel remarked that the government’s expansionary fiscal policy seems to be at odds with the central bank’s strategy to cool inflationary pressures.

In the face of potential tax cuts and energy subsidies, 55% of international banks and research consultancies polled by Reuters expressed high confidence that British assets would deteriorate significantly over the next three months.

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