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The pound at an all-time low against the dollar after an expensive "mini-budget"

2022-09-26T12:16:43.606Z

The context of concerns about new budget spending in London precipitates the fall of the British pound.



The British Labor opposition lambasted the government of Liz Truss after the pound plunged to an all-time low against the dollar, in reaction to a massive spending plan which raised fears of a slippage in public finances.

Around 11:15 a.m. GMT (1:15 p.m. in Paris), the British currency remained down 0.87% but had risen to 1.0728 dollars after touching during the night from Sunday to Monday 1.0350 dollars, its lowest ever against the greenback.

At the Labor Party Convention, Chief Financial Officer Rachel Reeves spoke of a "

national emergency

" and called Chancellor of the Exchequer Kwasi Kwarteng and Prime Minister Liz Truss "

two desperate gamblers chasing their losses at the casino

”.

On Friday the Chancellor of the Exchequer, Kwasi Kwarteng, "

had the opportunity to engineer a response to the cost of living crisis and it failed

", she added, lambasting tax cuts for better off and "

more than 50 billion pounds that accumulate on the national debt

".

She notes that the fall in the pound means "a higher cost of borrowing for the government" and more expensive home loan repayments for individuals, among other things.

Expensive

mini-budget ”

New Finance Minister Kwasi Kwarteng notably announced income tax cuts for the top tax bracket on Friday, in addition to those that had been distilled in the media before, accompanied by massive aid for energy bills in full swing. cost of living crisis.

Read alsoFor Liz Truss, a historic baptism of fire

The cost of this energy cost support has been calculated at 60 billion pounds for 6 months only, but economists estimate the whole tax package at between 100 and 200 billion pounds, worrying operators about the capacity of the Kingdom United to borrow.

Since the government announcements, the pound has plunged nearly 5%, and has lost 20% of its value since the start of the year.

Kwasi Kwarteng put the market's very negative reaction to his "

mini-budget

" into perspective on Sunday and contented himself with replying that the United Kingdom should have "

a more proactive approach to growth

", refusing to comment on the fall in the book.

70s scenario

Economist Nouriel Roubini, known for his very pessimistic predictions and for having anticipated the subprime financial crisis, claimed on Twitter that the United Kingdom was heading towards a scenario similar to that of the 1970s, “with in the end the need for 'go beg the International Monetary Fund (IMF) to be bailed out'.

The Bank of England (BoE), which had raised its rate by 0.50 percentage point to 2.25% on Thursday, may need to meet urgently to raise it again: the markets now believe that the rate could rise two percentage points by November, when its next meeting is scheduled.

Without intervention this week, the pound could well fall below parity to the dollar soon

,” warns Lee Hardman, analyst at MUFG.

"

The tension between the Bank of England and the Treasury is now palpable, with members of the Central Bank who want to limit inflation by weakening demand and political leaders who want to boost it

", summarizes Susannah Streeter, analyst at Hargreaves Lansdown.

Plaza Moment

Sky News, citing sources familiar with the matter, claimed the Bank of England was to issue a statement.

While inflation reached 9.9% in the United Kingdom, the highest in the G7, the monetary institute also estimated that the United Kingdom had entered recession during the third quarter.

The pound is not the only currency in difficulty against the dollar, which crushes everything in its path: since the beginning of the year, the yen has lost 20%, while the euro has fallen by 15%.

During the previous historic low of the pound, in 1985, several large countries, including the United States, had signed the Plaza agreements, which aimed to voluntarily depreciate the greenback.

Are we approaching a + Plaza moment +?

The dollar is as strong as it was then, but the spirit of cooperation between the world's major economies does not seem to be there yet,

”judge John Velis, analyst at BNY Mellon.

Source: lefigaro

All business articles on 2022-09-26

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