STERLING has fallen to a historic 37 year low against the dollar and a recent low against the Euro this week, after the UK government, headed by new prime minister, Liz Truss, and her chancellor, Kwasi Kwarteng, introduced a “mini-budget” that has sent financial markets into turmoil.
On Monday evening, the government was struggling to prevent total loss of confidence in its economic strategy, after the Bank of England declined the idea of an emergency interest rate hike to protect Sterling.
When the Bank of England said it would wait until November to “see what happened”, this prompted fresh selling of Sterling, with financial markets spooked by the turn of events.
The Bank of England had already increased the interest rate by half a percentage point last Thursday and is nervous about the impact of further rises on a delicate economy.
Meanwhile, some UK mortgage lenders, including Halifax, have temporarily withdrawn their products for new borrowers, amongst fears that the rate will increase.
While the Pound to Euro exchange rate was 1.177 exactly a month ago, it now stands at 1.118. The Pound to Dollar has fallen from 1.173 to 1.08 today, after hitting its historic low of 1.04 this week.
The mini budget – introduced last Friday by new chancellor of the exchequer, Kwasi Kwarteng – promised tax cuts, funded by borrowing, with the idea that the benefits might “trickle down” to the poorest in society. It is being described as “high risk” and “for the rich” by critics, including members of Kwarteng’s own Tory cabinet, as well as economic think tanks.
Letters of no-confidence have already been submitted to the 1822 Committee about Liz Truss, who is freshly in office as prime minister.
The sudden plummet in Sterling is affecting some expats, who were taken by surprise by the currency movements.
A reader based in the UK, who does not wish to be named, told us: “I’m due to complete on a property purchase in Andalusia in mid-October. I’ve already paid the deposit but, with the Pound taking a big hit, I’m not sure I’ll be able to complete the purchase, as the price is now several thousand more in Sterling terms.”
A British expat in Granada, who works as a high-end web designer, and pays tax in Spain, said: “Since Brexit, I’m 1,000e a month worse off, with the exchange rate. Thanks for that, Tories!”