The British pound plunged to a record low against the US dollar on Monday morning, just 19 days after Prime Minister Liz Truss and her government took office.
For many economists and politicians, the blame lies squarely with the new government and its tax cuts, which stand to benefit high earners more than the working class.
Lowering income tax from 45% to 40% for people earning over £150,000 ($159,876) a year will lead to a revenue loss of some £45 billion over the next five years, according to estimates.
Income tax has also been reduced from 20% to 19% for lower-income earners, a relatively smaller cut for a group bearing the brunt of the UK’s cost of living crisis triggered by spiraling inflation and energy costs.
The government argues that its moves, which represent the UK’s biggest tax cuts in over 50 years, will spur borrowing and increase growth.
The pound’s value picked up slightly toward the end of Monday, but the short-lived gains reversed soon after the Bank of England (BoE) put out a statement reiterating that it “will not hesitate to change interest rates by as much as needed” to bring inflation under control.
BoE governor Andrew Bailey said the bank is “monitoring developments in financial markets very closely in light of the significant repricing of financial assets.”
In the four days since the Truss government unveiled its mini-budget, the pound slipped from 1.17 against the dollar to 1.07, a body blow to a currency that has weakened consistently in the face of economic challenges over the past eight years.
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