Tax cut melted Sterling – Foreign Exchange News

Tax cut melted sterling

The tax cut package announced by the government in England hit Sterling. The pound tumbled close to 5 percent against the dollar and fell as low as 1.0350 this morning. This is the lowest level since 1985.

After the fall in the pound, the eyes were turned to the meeting of the Bank of England (BoE) in November. There are concerns that tax cuts and increases in government borrowing could fuel high inflation, forcing the bank to aggressively raise interest rates. The BoE recently increased interest rates by 50 basis points to 2.25%, a 14-year high. This was the bank’s seventh consecutive rate hike.


In the UK, the government announced the most extensive tax cuts since 1972 to stimulate the economy. The government estimates that tax cuts will total £45bn by 2026-27. Investors, on the other hand, are worried that public debt levels will rise.

Finance Minister Kwasi Kwarteng said on Friday that he will abolish the country’s top income tax and lower the base rate a year earlier than expected to spur growth.

The plan envisions 2.5 percent growth.


On the other hand, the US Federal Reserve’s (Fed) hawk messages continue to strengthen the dollar. The dollar index continued its rapid rise and saw 114.5 for the first time since May 2002.

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