The pound sterling continues to fall this Wednesday in the market of currencies against the dollar, the euro and the yen by investors’ concern about the British government’s plan to promote growth through a large tax cut, especially for companies and high incomes.
The UK currency was down 1.35% against the dollar to $1.05 after 1200 GMT, 1.01% against the euro to 1.10 euros, and 1.31% against the yen to 153.19 yen.
Last monday, the pound hit its all-time low against the US currency trading at $1.03 in response to the fiscal program announced by the Conservative Executive the previous Friday.
The Bank of England announced this Wednesday that until October 14 it will make an extraordinary purchase of long-term British public debt to try to stabilize that market, particularly affected by the reaction to the government’s economic strategy.
The bank, which maintains its intention to raise interest rates at its next meeting on November 3, has indicated that “if the dysfunction in this market continues or worsens”, with an even greater increase in the risk premium, “there would be a material risk to the financial stability of the UK“.
The International Monetary Fund (IMF) has criticized the UK fiscal plan as inadequate in the current context of high inflation and because “will likely increase inequality” social by favoring high incomes.
“We understand that the significant fiscal package announced is intended to help households and businesses deal with the energy ‘shock’ and boost growth through tax cuts and supply-side measures,” says the IMF.
“However, given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this time, as it is important that fiscal policy does not work contrary to monetary policy,” he adds. , alluding to the Bank of England’s tendency to raise interest rates.
The IMF has recommended the conservative Executive of Liz Truss to take advantage of an intervention scheduled for November 23 to “weigh ways to provide more specific support and re-evaluate fiscal measures, especially those that benefit people with high incomes”. Supporters of the Truss bill argue, however, that the government is correct in considering recession to be a greater risk than inflation and accuse the IMF of promoting too conventional economic policieswhile viewing the pound’s depreciation as a temporary adjustment.
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