Monday 26 September 2022 11:05 AM FTSE 100 share price falls as pound plunges to all-time low of 1.03 against ... trends now

Monday 26 September 2022 11:05 AM FTSE 100 share price falls as pound plunges to all-time low of 1.03 against ... trends now
Monday 26 September 2022 11:05 AM FTSE 100 share price falls as pound plunges to all-time low of 1.03 against ... trends now

Monday 26 September 2022 11:05 AM FTSE 100 share price falls as pound plunges to all-time low of 1.03 against ... trends now

Britain is facing the threat of a sterling crisis today after the currency slumped to an all-time low against the dollar in the wake of Kwasi Kwarteng's tax-cutting Budget.

The pound was 'absolutely hammered' in trading early this morning, dropping to just $1.0327 - even below the grim 1985 baseline of $1.0545. 

Although much of the ground was clawed back, that appeared to be partly due to expectations that the Bank of England would need to bring in an emergency interest rate hike - perhaps as soon as this week.

Because many key commodities are priced in dollars, a weak pound drives inflation up further. Markets are now pricing in the headline rate reaching 5.5 per cent next year, heaping more misery on families.

The cost of public borrowing also rose as bond yields rose to their highest rate in a decade amid the rate-rise speculation. Mr Kwarteng plans to use an increase in borrowing to fund public services at the same time as he cuts taxes.

Ministers have refused to comment on currency moves, but allies of Kwasi Kwarteng were blaming 'City boys playing fast and loose with the economy'. Labour accused the government of putting the UK on the 'highway to hell'.

And there are signs of Tory disquiet, with former chancellor George Osborne warning that it is 'schizophrenic' to try and have 'small-state taxes and big-state spending'.

Treasury committee chairman Mel Stride swiped at Mr Kwarteng for insisting yesterday that there are more tax cuts to come on top of the huge £45billion package announced on Friday.

'One thing is for sure - it would be wise to take stock of how, through time, the markets weigh up recent economic announcements, rather than immediately signalling more of the same in the near term,' the Tory MP said. 

The weak pound spells huge trouble for UK businesses, which face increasingly higher costs of importing goods from abroad. 

Today a $100 barrel of oil will be £95 - compared to £74 in January. Struggling sterling will also increase already sky-high inflationary pressure and will also likely further damage consumer confidence with Britain already in recession and in the midst of a cost of living crisis. The FTSE 250, which is domestically-focused, opened down 0.6 per cent, although the FTSE 100 - including many companies that make revenue in dollars - was up slightly.

As markets opened the pound tanked towards parity with the dollar before rising again to around $1.06

As markets opened the pound tanked towards parity with the dollar before rising again to around $1.06

The pound is down eight per cent since Liz Truss was elected PM three weeks ago and down approaching 25 per cent since that start of the year. It is a similar story for the euro

The pound is down eight per cent since Liz Truss was elected PM three weeks ago and down approaching 25 per cent since that start of the year. It is a similar story for the euro

Although much of the ground was clawed back, that appeared to be partly due to expectations that the Bank of England would need to bring in an emergency interest rate hike

Although much of the ground was clawed back, that appeared to be partly due to expectations that the Bank of England would need to bring in an emergency interest rate hike

Chancellor of the Exchequer Kwasi Kwarteng during an appearance on the BBC amid concerns about his mini budget

Chancellor of the Exchequer Kwasi Kwarteng during an appearance on the BBC amid concerns about his mini budget

Millions of public sector workers face a two-year pay squeeze before the general election due to rocketing inflation 

Millions of public sector workers face a two-year pay squeeze before the general election due to rocketing inflation.

Liz Truss promised a spending review during the Tory leadership but has now dropped that plan, notwithstanding the possibility that inflation could remain in double figures in 2023.

This means public sector workers will have real-term pay cuts before 2024, The Times reported.

Britain faces an inflation rate of 22 per cent this winter leaving millions unable to pay the bills and businesses going to the wall.

Goldman Sachs predicts inflation will double in 2023 as the price cap on energy bills continues to rise.

Chancellor Kwasi Kwarteng scrapped the top 45p rate of tax and cut 1p from the basic rate in the biggest package of tax cuts by a British Government for half a century.

He is also drawing up plans for a fresh round of tax cuts to help families struggling with the cost of living.

Advertisement

Paul Davies, chief executive of Carlsberg Marston's Brewing Company, has suggested the fall of the pound may cause a rise in beer prices - but experts believe the fall of the pound will see more increases passed on to consumers.

He told BBC Radio 4's Today programme that the drop was 'worrying' for the British beer industry, which imports beer and hops from overseas.

Asked if the value of the pound mattered, he said: 'Yes it does, many of the hops used in this country are actually imported and a lot of them, particularly for craft brewers, are imported from the States, so changes in currency is actually worrying for industry, for sure, and then of course people drink a lot of imported beers from Europe, and the euro vs the pound is also something we're watching very closely at the moment.

'Of course things will rise, I would say as an industry we're generally using British barley and we're using a lot of British hops, but of course if you're drinking double IPA that requires a lot of Citra hop and other hops from the States, and at some point that is going to have to be passed through to both the customer and the consumer if prices are this volatile.'

Chancellor Kwasi Kwarteng's mini-Budget saw gilts suffered their heaviest selling in three decades on Friday and this morning the pound plunged to its lowest as investors reckon planned tax cuts will stretch government finances to the limit because of the increased cost of borrowing. He refused to comment on the markets on TV yesterday, but said on Friday: 'I'm always calm… markets move all the time. It's very important to keep calm and focus on longer term strategy'.

This morning sterling tumbled as low as $1.0327, an all-time nadir, and also fell against other global currencies after new finance minister Kwarteng unveiled historic tax cuts funded by huge increases in borrowing.

Sir John Gieve, former deputy governor of the Bank of England, said he would be worried if he was still in the job as sterling falls against the dollar. He predicted the rate rise predicted in two months time could be brought forward.

He told BBC Radio 4's Today programme: 'I think I would be worried. The bank, and indeed the Government, have indicated that they are going to take their next decision in November and publish forecasts and, so on that point, the worry is that they may have to take action a bit sooner than that.'

George Godber, Fund Manager of Polar Capital told the BBC: 'A little bit of it can be explained by continued dollar strength.

'But specifically the moves on the pound is in reaction to the budget announced on Friday. This wasn't supposed to be a budget, it was supposed to be a fiscal statement. There was no process, no due diligence, no use of the OBR, quite a slapdash approach to it. The Bank of England could have to massively hike rates to protect scaring, there are some really scary ones. Rates could go another 2% higher in two years time, to 5.5%.' 

Shadow chancellor Rachel Reeves said she is 'incredibly worried' about the sell-off in the pound as she blamed Chancellor Kwasi Kwarteng's tax and spending plans.

The Labour MP told Times Radio: 'I started my career as an economist at the Bank of England and, like everybody 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 to the reaction overnight.'

She warned that the fall in the pound's value will raise the cost of Government debt, meaning 'more and more of Government spending will go on servicing the debt rather than going on public services, which are on their knees right now'.

Ms Reeves said: 'The pound is now at an all-time low against the dollar and that is not the same for other currencies, including the euro. So, there's something going on in the UK and it's not just dollar strength. There's a selling-off of the pound and that was on the basis of the Chancellor's so-called mini-budget on Friday.'

The Government remains focused on delivering its growth package despite the fall in the pound, a minister has said.

Asked by Sky News about the slide, Work and Pensions Secretary Chloe Smith said: 'I am not going to be able to comment on particular market movements and there are various factors that always go into those.

'But the Government is absolutely focused on delivering the growth package as we set out, with various ways that we will be helping both businesses and households to move ahead to growth, and, as I say, to greater opportunity.

'For me in particular in the Work and Pensions department, I want to then be able to help more people into more good and well-paid jobs.'

Prime Minister Liz Truss giving an interview to CNN

Prime Minister Liz Truss giving an interview to CNN

Asked about the poor polling the Tories were facing, Ms Smith added: 'I have every confidence that the kind of support that the Conservatives were delighted to have in 2019 will continue to follow Liz Truss and be able to have a

read more from dailymail.....

PREV Mother slams 'hopeless' police after her 50-year-old son's body lay ... trends now
NEXT In news vacuum, rumours and concern swirl over Catherine mogaznewsen