Pound falls to lowest level against US dollar since 1985

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The pound fell to its lowest level against the US dollar since 1985, an ominous development on Liz Truss’s first full day as prime minister.

The low-point not seen since the days of Margaret Thatcher was partly a result of a stronger dollar, as Bank of England Governor Andrew Bailey noted this morning.

But Britain’s sluggish economic outlook played a big part. The bank has warned that skyrocketing energy prices will soon lead to a recession by the end of 2023, a year in which Britain was already projected to have the weakest growth in the G7.

“Markets are enjoying the opportunity to bash the British pound,” said Valentin Marinov, lead currency researcher at Credit Agricole.

The pound fell 1 percent to $1.1403 on Wednesday afternoon, as the dollar continued its recent strong spell, hitting a 24-year high against the Japanese yen and near a 20-year high against the euro.

Ms Truss’s economic plans have stirred financial markets. The tax cuts he made, coupled with an estimated £100bn-plus set aside to cap energy bills, have prompted investors to dump the pound and government bonds in recent weeks .

New Chancellor Quasi Quarteng said in a meeting with bank owners that he would pursue a “shameless pro-development agenda”.

Economists are skeptical that the prime minister’s tax-cutting plan will spur growth. Dr George Dibb of the Institute for Policy Research said: “Liz Truss is right to have bold ambitions to grow the economy, but all indications are that she is falling back on failed policies of tax cuts and regulation.

“Corporations have failed on their promise to boost investment by more than a decade of tax cuts. Any income tax cuts right now will be offset by the Bank of England at even higher interest rates.”

Who Pill in the Treasury Committee on Wednesday

The bank’s chief economist Hugh Pill told the Commons Treasury Select Committee on Wednesday that Ms Truss’s plan to freeze energy bills would force another interest rate hike, despite preventing inflation from hitting a higher forecast of 13.3 percent for the autumn .

Appearing before lawmakers along with Bailey and two other members of the bank’s monetary policy committee, Mr Pill said the decision on interest rates would not reflect a fall in inflation in the coming weeks.

“This very short-term impact on inflation may not be the most important thing from a monetary policy point of view. From a monetary policy point of view what is the implication of the package of measures… for inflation over the long horizon,” he said.

Four bank officials blamed Britain’s current economic crisis on Russia for halting gas exports to Europe. “I’m afraid we can’t control what Vladimir Putin does, Mr Bailey said.

Economists have warned that the euro zone is also facing a recession, leaving stock markets across the continent trembling. The FTSE 100 lost 0.6 per cent and France’s CAC 40 and Germany’s DAX lost 0.4 per cent.

Credit: www.independent.co.uk /

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