Pound Stabilizes, UK Turmoil Continues 09/27 06:08
LONDON (AP) -- The British pound stabilized in Asian trading on Tuesday
after plunging to a record low a day earlier, as the Bank of England and the
British government tried to soothe markets nervous about a volatile U.K.
The instability began to have real-world impacts, with several British
mortgage lenders withdrawing deals amid concern that interest rates may soon
The pound was trading at around $1.08 on Tuesday morning. On Monday it
plunged to $1.0373, the lowest since the decimalization of the currency in
1971, on concerns that tax cuts announced Friday by Treasury chief Kwasi
Kwarteng would swell government debt and fuel further inflation.
Late Monday the central bank said it was "closely monitoring'' the markets
and would not hesitate to boost interest rates when it next meets in November
to curb inflation that is running at 9.9%.
The U.K. Treasury also sought to reassure markets, saying it would set out a
medium-term fiscal plan on Nov. 23, alongside an economic forecast by the
independent Office for Budget Responsibility.
The statements did little to ease misgivings about the government's economic
policies, with the pound staying well below the $1.12 level it held before
Kwarteng's announcement on Friday.
Some analysts warned that the statements from the bank and the Treasury were
"too little, too late."
"There is no rate increase today and speculators will enjoy the prospect of
two months of Bank of England inactivity if the statement is taken at face
value," said Alastair George, chief investment strategist at Edison Group.
The government plans to cut 45 billion pounds ($49 billion) in taxes at the
same time as it spends more than 60 billion pounds to cap energy prices that
are driving a cost-of-living crisis.
Kwarteng and Prime Minister Liz Truss, who replaced Boris Johnson as prime
minister on Sept. 6, are betting that lower taxes and reduced bureaucracy
eventually will generate enough additional tax revenue to cover government
spending. But many economists say it is unlikely the gamble will pay off.
Torsten Bell, who heads the Resolution Foundation, an economic think-tank
focused on inequality, said the markets were looking at British government
plans "and saying that is not what serious policymaking looks like."
"The world we are heading for is a bumpy few weeks," he told Sky News.
Kwarteng "is now going to have quite a tough time because he has now set out
plans to balance the books in November. That is going to be very hard."