By Matthew Vassallo
The recent negativity amongst investors towards to the Pound continued over the weekend, with Sterling dropping to its lowest level on record against the US Dollar.
Cable rates plunged to the lowly depths of 1.03 by close of trading in Asia, a level not seen at any time in the history of the currency pair. Whilst the Pound did find a level of support around this threshold, which helped it recover to 1.06 by this morning, this modest bounce back will do little to calm the markets’ fears in regard to the current state of the UK economy. More precisely, it would seem that the new Chancellor Kwasi Kwarteng’s proposed tax cuts announced during his “mini budget” on Friday, have done nothing but cement a feeling that the current political establishment is incapable of driving the UK economy forward.
In hindsight the Chancellor may now be regretting his overly bullish address to parliamentary members, with his proposal to cut UK taxes to their lowest level in 50 years being torn apart from pillar to post.
He was on record again yesterday trying to reinforce the UK government’s position, whilst seemingly brushing off concerns over the complete disintegration in sterling’s value, citing it as mere market volatility.
It would not be a surprise if there was an element of backtracking on his part, to try and appease investors at least to some extent. The alternative is that the Bank of England will likely have to step in, if we were to see another downturn of such a proportion.
Either way it is clear that the UK government has got its work cut out to try and manage an increasingly volatile situation or face a potentially unsustainable backlash from the UK public and investors alike.