British currency trades at levels last seen in the early 1980s against the dollar as the UK struggles to fight inflation.
The British pound resumed a slide against the US dollar after Britain’s new government outlined plans to cut taxes and boost spending.
The pound is going through its biggest drop against the US dollar since March 18, 2020, when then-Prime Minister Boris Johnson announced the first nationwide lockdown to control the spread of COVID-19.
It dipped as low as $1.0349 per US dollar, the lowest ever, early on Monday but then rebounded to $1.0671.
The British currency closed at $1.0822 in London on Friday, from $1.1255 on Thursday. It is currently trading at levels last seen in the early 1980s.
The government’s tax-cut plan has sparked concerns that increased public borrowing will worsen the nation’s cost-of-living crisis.
Inflation 40-year high
Prime Minister Liz Truss, who took office less than three weeks ago, is racing to combat inflation at a nearly 40-year high of 9.9 percent and head off a prolonged recession. Facing a general election in two years, she needs to deliver results quickly.
Treasury chief Kwasi Kwarteng recently announced the sweeping tax cuts that he said would boost economic growth and generate increased revenue without introducing corresponding spending reductions.
He also said previously announced plans to cap soaring energy bills for homes and businesses would be financed through borrowing.
The financial policy spokeswoman for Britain’s opposition Labour Party said she was incredibly worried about the fall in the pound overnight, saying it put pressure on the Bank of England to raise interest rates.
“I started my career as an economist at the Bank of England and like everyone else I’m incredibly worried about what we’ve seen, both on Friday with market reactions to the chancellor’s so-called mini-budget, and also the reactions overnight,” Rachel Reeves told Times Radio.
“It also puts more pressure on the Bank of England to increase interest rates,” she added.