Pound slumps to fresh 37-YEAR low against US dollar

Pound slumps to fresh 37-YEAR low against the US dollar – under $1.12 – and UK government’s borrowing costs surge as markets brace for Kwasi Kwarteng’s ‘Emergency Budget’

Sterling fell to a fresh 37-year low against the dollar today as the markets braced for Kwasi Kwarteng’s ‘Emergency Budget’.

The Pound fell around 0.6 per cent to hit $1.117, chalking up another unwanted record stretching back to 1985. 

The currency was holding ground against the euro, with much of the slide down to the greenback’s strength – but there is mounting nervousness about the government’s strategy of borrowing for an energy bill freeze and sweeping tax cuts.

Markets have pushed up the government’s interest rates on debt to an 11-year high. 

Derek Halpenny, head of research at MUFG, warned the pound could fall further over policies that ‘lack credibility and raise concerns over external financing pressures given the budget and current account deficit combined looks to be heading to around 15 per cent of GDP’.

Of the international banks and research consultancies polled by Reuters last week, 55 per cent said there was a high risk confidence in British assets would deteriorate sharply in the coming three months.

Sterling fell to a fresh 37-year low against the dollar today as the markets braced for Kwasi Kwarteng's 'Emergency Budget'

Sterling fell to a fresh 37-year low against the dollar today as the markets braced for Kwasi Kwarteng’s ‘Emergency Budget’

Meanwhile, Bank of England policymaker Jonathan Haskel said yesterday that the central bank was in a difficult position as the government’s expansionary fiscal policy appeared to place it at odds with the BoE’s efforts to cool inflation

Economists have voiced alarm at the massive borrowing that will be required to cover the hole in the government’s books. 

The two year freeze on energy bills for households and businesses announced earlier this month could cost more than £150billion by itself, while the tax cuts could add a further £50billion to the tab.

The respected IFS think-tank suggested it would be the biggest tax move since Nigel Lawson’s 1988 Budget, when Ms Truss’s heroine Margaret Thatcher was PM.

The dangers of ramping up the UK’s £2.4trillion debt mountain while the Ukraine crisis sends inflation soaring have been underlined by the continuing slide in the Pound against the US dollar, reaching a fresh 37-year low of barely 1.11 this morning. 

In August and September so far the 10-year yield on government gilts has seen the biggest increase since October and November 1979, emphasising the nervousness of markets about the situation.

However, Ms Truss and Mr Kwarteng argue that ramping up economic activity can make up the difference, pointing to decades of lacklustre productivity improvements.  

Mr Kwarteng will unveil a huge package of tax cuts in the House of Commons this morning

Mr Kwarteng will unveil a huge package of tax cuts in the House of Commons this morning

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