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Denis Sergienko • 2022-09-27

GBP Hit an All-Time Low against USD

GBP Hit an All-Time Low against USD

The British pound has reached the historical bottom against the U.S. dollar. The United Kingdom is facing an enormous economic crash featuring talks of emergency hikes and massive tax cuts.

What Is Going on in the UK?

GBP has hit its historical all-time low against the USD falling below the $1.04 mark. This was the reaction to the tax cuts announcements that will take place for the first time since 1972. It seems like the nation is about to get back to a so-called trickle-down economy once promoted by Thatcher and Reagan.

On Tuesday morning, the British pound experienced a slight recovery and pulled back to $1.078. However, the situation may go even worse taking into account the announcement of the government to hike interest rates with no hesitation if needed to get inflation back to its medium-term level, which is 2%.

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Experts say the new chancellor and the Bank of England take an enormous risk when reluctantly raising the rates despite clear pressure.

A New Fiscal Package

The government is planning to bring the new fiscal package. It will contain £45 billion in tax cuts for £60 billion in energy support delivered to businesses and households to keep them on board at least for the next 6 months.

The package will be funded by borrowing. In addition, the Bank of England has announced its plans to sell £80 billion in gilts. They believe it will make it possible for the government to scale the balance sheet back. At the same time, experts say, the Bank will be forced to act more aggressively and raise interest rates as the only means to keep inflation under control.

Economic Crisis On Its Way

All the above-mentioned means are witnessing in favor of the upcoming economic crash in the UK. Some experts even call it a “textbook currency crisis” featuring the Bank of England putting into action quantities tightening with borrowing-financed tax cuts and fiscal stimulus in the foreground.

The worst thing here is that there is no sign of these particular steps resulting in further economic growth.