The British pound has had its worst season on record, and as the steady slump has continued unabatedly, its value has plummeted below $1.10 for the first time since 1985.
The depreciation of the pound and a hike in the volume of goods imported into the UK will throw off the country’s annual trade balance.
According to economists, the weak pound will drive up the cost of imported products, causing inflation to spiral out of control, and will inevitably deteriorate citizens’ living standards.
Moreover, as the royal family’s extravagant spending grew exponentially, British consumers’ faith in their politicians continued to erode due to the current economic turmoil.
The 4% decline came only one day after the British government announced the most significant tax reduction in the nation in the past 50 years.
The nascent administration of British Prime Minister Liz Truss unveiled a mini-budget, sending shockwaves through the country’s markets and precipitating the pound sterling’s crash.
The alleged goal of the Truss administration’s controversial strategy is to protect consumers, stimulate economic growth, and avert a deep recession.
However, the Bank of England (BoE) may face additional strain to increase interest rates and strengthen the currency in reaction to the pound’s slide; implementing the package a quite challenging.
On the other hand, a decrease in the pound may promote investor interest in stocks, leading the British stock market to deviate from the downward trend of other important economic indices.
The pound’s decrease in value, inflation’s persistent rise, the possibility of a surge in the interbank interest rate, the lingering repercussions of Brexit, and the COVID-19 pandemic have all contributed to the new Tory government’s financial policy faltering, which will prompt political opponents, particularly Labour Party members, to excoriate Boris Johnson’s successor fiercely.
Furthermore, the lower British pound has made UK real estate attractive to American homebuyers. “We have seen a steady increase from Americans,” said Paddy Dring, global head of prime sales at Knight Frank. “Some are forwarding their plans and will use this opportunity for their longer-term investment plans to diversify abroad.”
The only solution to save Britain’s sinking economy is to raise interest rates to lure foreign investors. Nevertheless, Brexit’s adverse ramifications, the looming spectre of a second Scottish independence vote, the trade war with the European Union, and the long-term consequences of the Federal Reserve’s monetary contraction pressure on emerging economies will make it difficult for the UK to extricate itself from its economic catastrophe.