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There are major concerns in the UK about the sharp drop in the pound. The value of the British currency against the US dollar has never been as low as this morning before.
The drop came on the heels of the $1 billion tax cut announced by the new government last Friday. As a result of this controversial package, which mainly benefits the wealthy, investor distrust of the faltering British economy has increased.
A pound is roughly equal to a dollar
Since Friday, the pound has fallen more than 5 percent compared to the dollar. After an unprecedented drop at $1.0373 a pound early this morning, the British currency rose slightly in the evening to around $1.06.
A fall in the British pound causes prices to rise in the UK, as imports become more expensive. Just as in the Netherlands, more and more Britons are struggling to make ends meet as a result of rising food and energy prices.
The central bank, the Bank of England (BoE), says it is closely monitoring the state of the crisis. The Bank of England will “not hesitate” to raise interest rates if necessary to curb inflation. Some British media speculated in advance that the central bank might intervene early today, but it did not.
Finance Minister Kwarteng says the £45 billion tax cut will lead to long-term economic growth. Once the economy grows due to the tax cuts, the money will be recovered, which is the reason for the new government led by Prime Minister Truss.
But there are concerns that the plan will exacerbate already high inflation. Critics fear the pound will depreciate further, causing the British government to spend more money on interest on government bonds.
The devaluation of the pound sterling, as well as other currencies against the dollar, has been going on for some time. At the beginning of March, sterling was still at $1.35, more than 30 cents more than earlier this morning.
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