The British pound moved away from a two-and-a-half-year low against the US dollar on Tuesday after media reported that new Prime Minister Liz Truss would announce major plans. freeze electricity bills For households to ease the cost of living crisis.
The pound reached $1.16 amid reports that broader easing was being considered, but reversed most of its gains by late afternoon in London, trading around $1.15. Household electricity and gas bill caps are set to rise next month, with average bills up 80 per cent from around £2,000 ($2,317) to £3,549 for him.
The small reversal in the pound comes in a long downtrend. The UK currency has fallen about 15% against the dollar this year. did little in Britain’s favour.
Even as the pound strengthened on Tuesday, easing the threat of breaking below lows seen in 1985, Mr Truss’ government, along with other election promises to cut taxes on workers and dump energy , raising questions about how to pay for energy relief. A corporate tax hike is planned. Other costly policies have been proposed, including reducing VAT, a type of consumption tax.
Kwasi KwartenHe is expected to become the next prime minister of the Ministry of Finance.
However, UK borrowing costs are rising sharply. Yields on 10-year government bonds, one of the benchmarks, approached 3%, the highest since early 2014.
Analysts say these funding concerns will continue to weigh on UK assets as investors wait to see what combination of borrowing and taxes will apply to paying for the package.
Kamal Sharma, a strategist at Bank of America, said it was “abnormal” for the pound and government bonds to fall at the same time. It could be related to long-term concerns about the pound, such as the widening current account deficit. There is also a potential strain on government finances from plans for more stimulus, he wrote.
“The wide range of movements in the pound highlights how confidence has eroded,” Sharma wrote. He expected the pound to remain weak this year.
“Investor confidence cannot be taken for granted,” Deutsche Bank strategist Shreyas Gopal wrote in a note Monday. , he added, could lead to a currency crisis in which foreign investors refuse to fund the UK’s current account deficit. “A large and targeted fiscal stimulus” could exacerbate the deficit, a key risk for the pound, he wrote in a note.