The British pound has continued its plunge, hitting near-parity with the dollar and its lowest level since decimalisation in 1971, with analysts calling for emergency interest rate rises from the Bank of England.
The pound dropped to its all-time lowest level of $1.0327 and gilts saw record falls, as both the FTSE 100 and FTSE 250 saw falls to three-month lows on Friday.
On Friday, Deutsche Bank analyst George Saravelos called for an emergency interest rate rise, writing that the required policy response was, “A large, inter-meeting rate hike from the Bank of England as soon as next week to regain credibility with the market.”
On Sunday, Kwasi Kwarteng said, “As chancellor of the exchequer, I don’t comment on market movements. What I am focused on is growing the economy and making sure that Britain is an attractive place to invest.
“There’s no way that a government… shouldn’t respond in a fiscally expansive way to support the economy, support our people through these two unprecedented shocks.”
Michael Every, strategist at Rabobank Singapore said that the market is now treating the UK as if it’s an emerging market.
He said, “The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying: ‘That’s not going to work,’ on steroids.
“The market is now treating the UK as if it’s an emerging market. And they’re not wrong in terms of the policy response and the naivety of thinking that boosting demand rather than supply is how you deal with a supply-side shock.”
Unprecedented tax cuts
The £200 billion package of tax cuts included abolishing a planned rise in corporation tax on businesses to 25% from its current level of 19%.
Income tax will also be cut by 1p to 19p from next April – and the 45p rate of income tax for top earners will be abolished from April 2023.
Stamp duty on home purchases is also being slashed, with the level at which house-buyers begin to pay the tax doubled from £125,000 to £250,000.