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London (AFP) – British Prime Minister Liz Terrace’s new government came under fire on Monday after the pound fell to a record low against the dollar following the announcement of a massive tax cut last week.
The Bank of England announced in a rare statement issued between rate-setting meetings that it is watching market developments “closely”.
The central bank added that it “will not hesitate to change interest rates as much as is necessary” to curb rising inflation, in a sign of further pressures awaiting British households and businesses.
But he indicated that he would wait until the next policy development meeting on November 3 before making a comprehensive assessment of the impact of the government’s controversial plans.
Labor has criticized Truss for its borrowing schemes, which some economists warn could exacerbate inflation.
Addressing the opposition party’s annual conference, finance spokeswoman Rachel Reeves described the situation as a “national emergency”, noting that a fall in sterling would cause import and borrowing costs to rise sharply.
Reeves likened Prime Minister Truss and Treasury Secretary Kwasi Quarting to “desperate casino gamblers”.
But Downing Street insisted that the aggressive tax cut plan announced by Quarting on Friday, just three weeks after Truss took office, was necessary to revive weak growth.
A Trass spokesman said the plan would “develop our economy faster than our debt,” adding that the government would not comment on market movements that destabilize the pound.
On Monday, the British pound hit an all-time low of 1,0350 against the dollar, before recovering somewhat and standing at 1,0706 at 15:50 GMT, but it is still dangerously close to parity with the green currency.
Britain is facing a rising cost of living with rising energy prices, inflation and stagnant wages.
While the UK inflation rate stands at 9.9 percent, the highest rate in the G7, the central bank estimates that the country entered recession in the third quarter.
© 2022 AFP