The PM’s ‘Trussonomics’ have crashed the value of the British pound barely 19 days after taking the lead of the country.
On the Monday morning following the new UK Chancellor, Kwasi Kwarteng’s, announcement of the mini-budget on Friday 23, the pound devalued to a 37-year record low against the dollar, scoring at $1.03 and stabilizing around $1.07, down from $1.34 at the start of the year.
The loss of the economic power of the sterling means that the British public now faces an even lower purchasing power as prices of imported goods such as food, petrol, and gas will continue to rise, tightening wallets around the country.
The controversy-ridden measures, meant to curb inflation and fight against the cost-of-living crisis, included, amongst other things, record-breaking tax cuts which disproportionately benefit Britain’s top earners, the scrapping of a limit on bankers’ bonuses, and a freeze on energy bills to combat the rise of energy costs.
While the energy measures were welcomed by the public, Prime Minister Liz Truss has been under heavy criticism for her insistence on trickle-down economics as a plan against inflation.
Truss has indicated that she plans to stand by the package, although she admitted in an interview that the implementation of the measures had been premature, and cabinet had not been consulted prior to the announcement.
As a result of the tax cuts, investors have become wary of British markets as no announcements were made regarding how the government would pay for the current public spending.
Experts believe the only ways to survive the cuts are to either increase government borrowing or decrease public spending, neither of which have been confirmed or ruled out by the Prime Minister or Mr Kwarteng.
In an unprecedented announcement, the Bank of England has committed to buy as much debt as needed to quell the storm created by Truss’ government, settling on buying up to £5bn of British government bonds a day until October 14.
In a statement, the Bank of England said: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.” Some experts predicted an emergency increase in interest rates by the BoE to help curb the predicted inflation resulting from the financial turmoil, but this has since been debunked as the BoE announced it would wait until its next set of measures in November.
The refusal has spooked mortgage lenders like Halifax, the UK’s biggest home loan provider, who forecast a need to raise interest rates between 2.25% and 6% to reinstate market confidence. Home buyers also fear the hike in interest rates and mortgage repayments in the coming months, putting the housing market at a dangerous impasse.
This instability has rewarded the Prime Minister with an approval rating lower than that of Boris Johnson before he was forced to resign.