British Pound Touches Record Low Against Dollar

Traders have dumped other British assets, sending the yields on government bonds to new highs, while analysts have said the government’s plan to quickly grow the economy through deregulation and tax cuts, which will require tens of billions of pounds in additional borrowing at a time of rising interest rates and high inflation, was a gamble.

The yield on benchmark 10-year bonds, which influences mortgages, business loans and other types of debt, climbed to 4.24 percent, the highest since early 2010 and nearly double the rate about a month and a half ago. The yield on two-year bonds was half a percentage point higher on Monday, at 4.57 percent, the highest since the financial crisis of 2008.

On Friday, Kwasi Kwarteng, who has been chancellor of the Exchequer for about three weeks in prime minister Liz Truss’s new government, announced a series of cuts to income taxes, reduced levies on home purchases and scrapped a plan to raise the corporate tax rate. There were dozens of other policy measures, which come on top of an expansive, costly plan to cap the cost of electricity and gas for households and businesses.

Despite the breadth of new measures, the government did not have the Office for Budget Responsibility, an independent watchdog, assess the policies and provide updated economic and fiscal forecasts.

“It was perhaps the lack of reassurances about fiscal responsibility that tipped the market over the edge,” said Jane Foley, a strategist at Rabobank.

On Sunday, government officials projected confidence in their tax-cutting agenda, despite the market’s negative reaction to the initial plans. Mr. Kwarteng said there would be “more to come” in his drive to have “people retain more of their income.”

Article source: https://www.nytimes.com/2022/09/26/business/british-pound-dollar-gbp-usd.html