The British government introduced a stimulus package – the pound collapsed against the dollar to its lowest level since 1985

The British government introduced a stimulus package the pound

The British government presented a supplementary budget on Friday, which will reduce taxes, increase spending and take on more debt. The exchange rate of the British pound collapsed.

23.9. 22:35•Updated 23.9. 22:37

In Britain, the country’s new prime minister By Liz Truss led by the conservative government on Friday presented a supplementary budget to revive the economy.

The new finance minister Kwasi Kwarteng presented the stimulus package planned by the government, the goal of which is to get the British economy to an annual growth rate of 2.5 percent as the recession looms.

The centerpiece of the supplementary budget is the reduction of taxes to the value of approximately 45 billion pounds, or more than 51 billion euros, by the years 2026–27.

The highest tax rate drops from 45 percent to 40 percent and the most commonly used tax rate drops from 20 percent to 19 percent.

In addition, the company tax increase planned for spring will be canceled and in the future, you will not have to pay stamp duty for buying an apartment worth less than 250,000 pounds. The increase in the alcohol tax will also be canceled and, among other things, the cap on salary bonuses for bankers will be removed.

The opposition severely criticized the government for targeting tax cuts, especially for the country’s high income earners

The tax cuts are estimated to cost Britain £45 billion. In addition, the government’s already decided energy support packages bring additional costs of tens of billions of pounds to the state. The Ministry of Finance announced that borrowing will be increased this budget year for about 72 billion pounds.

The market was not enthusiastic about the stimulus package

The Truss government is trying to give the British economy more momentum at the same time as the country’s inflation is soaring at its highest level in 40 years, at a level of about 10 percent compared to a year ago. Inflation is predicted to rise to up to 13 percent by the end of the year.

The tax cuts might accelerate inflation, which would force the British central bank, the Bank of England (Boe), to raise interest rates again. The BoE has already raised the key interest rate in seven meetings in a row, most recently by 0.50 percentage points to 2.25% yesterday.

At the same time, the BoE estimates that the British economy may contract already in the third quarter of the current year and sink into recession in the last quarter at the latest. If the recession becomes deep, the high interest rate will make it difficult to get into a new upswing.

The market was worried about Britain’s economic outlook and the content of the stimulus package. Interest rates on government bonds started to rise and the value of the pound almost collapsed. The British pound fell to its lowest level against the US dollar since 1985.

One pound was worth $1.08 at the end of the day.

yl-01