WHY is the Pound falling?
Investors are worried about the huge increase in government debt needed to fund the £45billion of tax cuts and energy support for households and businesses.
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A lack of official costing has not helped.
Also, interest on government debt — known as yield on gilts — is trading at levels last seen in the financial crisis of 2008 showing that investors think the UK’s economy is risky.
How low did the Pound go?
It had slumped to its lowest point in 37 years of $1.08 but yesterday morning it crashed to a record low of $1.03 in return for £1.
The Pound has never been worth the same or less than a dollar since Britain switched from shillings and pence to decimal in the 1970s.
Is there any other driver?
The Pound had already been falling against the dollar this year because of worries about rising energy prices.
Oil-rich America is not so affected.
Consumer confidence has been strong due to pandemic support.
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Its central bank has been quicker at raising interest rates too, which pleases global investors who get more in return.
The Bank of England has been criticised for not being fast enough at raising interest rates to tackle inflation, including last week when it lifted them below the level expected.
How does a weak Pound affect me?
There will be an immediate difference in how much you get for your cash abroad.
Prices will increase because companies import in dollars.
Energy bills will keep rising because despite gas and oil prices falling, the market is priced in dollars. Carlsberg Martson’s boss Paul Davies warned beer prices could rise because brewers import hops from overseas.
What’s the upside?
The UK could become a hotbed for overseas investors who will invest in assets at cheaper prices.
British services will also be more attractive to export.
Tourism could be boosted.
When will we get out of this?
It depends if the Bank raises interest rates to support the Pound.
The mini Budget is designed to be pro-growth and if investors believe that it will help bounce Britain out of recession faster than its European rivals, the Pound could strengthen again.
What happened yesterday?
Chancellor Kwasi Kwarteng said he would set out his plan on how to reduce borrowing in November.
The Bank resisted a rate rise but said it would monitor Sterling’s fall.
The Pound erased some of its afternoon recovery in response.
