CHANCELLOR Kwasi Kwarteng has urged markets to “keep calm” and carry on as the value of the pound against the dollar tumbles to a record low.
The statements were made over the weekend but No10 has stood by the stance this morning, adding that they do not comment on market or currency movements.
1
The pound has fallen to its lowest level against the dollar since decimalisation in 1971.
Sterling fell by more than 4% to just $1.03 in early trading in Asia. It is currently $1.07 as of 1pm today.
The Bank of England is also understood to be preparing an intervention, with a statement expected as soon as today, amid mounting pressure on Governor Andrew Bailey.
A No10 spokesperson said: “We don’t comment on market or currency movements.
“It is right as we did during the pandemic to use the tools available to government to support households, businesses and jobs through the current challenges.”
Over the weekend, the Chancellor said in an interview with the Financial Times: “It’s very important to keep calm and focus on the longer term strategy.”
The euro also hit a fresh 20-year low amid recession and energy security fears.
The pound’s value against the euro has fallen in recent weeks and £1 now buys €1.10, at the time of writing.
The pound plunged on Friday to a 37-year low after the Chancellor announced his mini Budget.
Kwasi Kwarteng has brushed off questions about the markets’ reaction to his mini Budget.
His plans outlined the biggest programme of tax cuts for 50 years, costing more than £70 billion of increased borrowing.
The Chancellor confirmed that the 1.25% point increase to National Insurance will be scrapped from November 6 – savings the average household £330 a year.
A 1p cut to the basic rate of income tax which will save 31million people £170 a year on average was also announced.
Most read in Money
The government also scrapped the very top rate of income tax for all workers.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said: “The pound has been on a fast downwards track of a rollercoaster, plunging to record lows yet again this morning, as confidence in the government’s economic management continues to evaporate.
“The fresh bout of panic appears to have been brought on by rumours that the Bank of England may step in with an emergency rate hike to try and shore up support.”
The news comes as a new report suggests that the UK economy will grow less than previously predicted this year and flatline entirely in 2023.
Will the Bank of England raise rates?
A weak pound could also mean more action from the Bank of England (BoE), which has already increased rates in a bid to tackle soaring inflation.
A further rate rise is expected from its next planned meeting in November.
But further intervention could mean appealing for calm or an unscheduled rate rise.
Any such move would take us back to the 1990s of the Bank of England trying to prop up the Pound.
The Bank of England declined to comment on the nature of any intervention.
Britain’s central bank raised interest rates last week by 0.5 percentage points to 2.25%.
The central bank also warned that the UK economy will likely officially enter recession by the end of the month.
The Bank of England now expects inflation to peak at 11% this October, compared to its earlier forecast in August of 13.3%.
This would would mark the highest inflation the UK has witnessed since January 1982.
The central bank has already hiked the base rate six times this year.
What a weaker pound means for your finances
A weak pound can affect your finances in a number of ways.
That cost of importing goods could increase, which could push up prices and inflation further.
The weak pound is also hitting drivers in the pocket, despite petrol prices falling.
Petrol prices fell below 166p a litre for the first time since May on Wednesday.
But oil is priced in dollars and the weak pound has already added almost a fiver more to a tank of fuel when filling up at the pumps, according to the AA.
Ms Streeter said: “Sterling’s slide makes imports more expensive so the falls we have seen in oil prices over recent weeks won’t be fully felt at the petrol pumps and hoped for lower food prices will now take longer to materialise.
Further action by the BoE to increase rates could impact the cost of borrowing, including loans, credit cards and mortgage repayments more expensive.
It means more misery for households who are already grappling with a cost of living crisis.
It’s a blow for anyone buying holiday cash now as you’ll get fewer dollars for each pound you exchange.
A fall in the value of sterling is bad news for holidaymakers, who will find they get less travel money at the Foreign Exchange.
If the value of the pound versus the dollar is $1.05/£1 then for every £100 you change up, you get £105 dollars.
If the pound to dollar exchange rate drops to $1.1/£1 then you’ll only get $110 for £100 holiday spending money.
That means buying anything abroad seems more expensive, and can impact on what you can afford to do on your holiday.
There are some steps you can take to make your travel money go further.
Ordering your cash online in advance will help avoid a last-minute rush at the airport, where the exchange rates are typically much worse.
TravelMoneyMax at moneysavingexpert.com can help you compare rates from different bureaux de change.
Overseas spending cards mean you don’t have to worry about carrying wads of cash too.
These are specific debit and credit cards designed for using abroad, which won’t charge you for each transaction like a standard card will.
But be careful when flashing the plastic as it can make it easier to overspend and ignore your budget.
A weaker pound can also have an impact on the value of your pension or any investments you might have.
This is because if you hold shares in a company based overseas, their value is affected by currency movements.
If you notice a dip in the value of your investments, it’s best not to panic or be tempted to sell.
