On Friday, Britain’s new Finance Minister, Kwasi Kwarteng, announced historic tax cuts to stimulate domestic economic activity as part of the new government fiscal policy and strategy to increase borrowing and pay for tax cuts.
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The new fiscal policy has seen the British Pound plummet
According to the Guardian, as a result of the newly introduced fiscal policy by the chancellor, the pound has hit an all-time record low against the US dollar and is likely to rise the cost of living in the UK for those who consume foreign products.
‘A plunging pound against the soaring dollar spurs concerns of even higher inflation’, the Washington Postreports. With the recent tax cuts, it is expected that consumers will spend the extra money on goods and services thus leading to higher inflation.
Investors believe that the plan of the new Truss government in the UK envisioned to stimulate domestic economic activity, will only lead to a higher budget deficit and more inflation. Reuters reported back in June that the inflation in the UK had hit a 40-year record.
What a falling pound means for consumers and businesses
According to the Guardian, the UK imports 50% of its food, so with the pound in free fall, this means that the cost of anything imported, from bananas to courgettes will spike. For consumers, it will also become more expensive to purchase retail products such as iPhones and other imported technology.
As we are entering the colder months of the year, a falling pound is expected to raise the energy billfor UK households. The Washington Post, reports that the UK imports half of its oil and gas needs from international markets which trade in dollars, and gas makes up one-third of the domestic electricity production.
According to BBC, multiple sectors are affected, this is not a good time for the British beer industry which relies heavily on hops imports from Europe and the US.
Nonetheless, it is relatively good news also for UK producers who are not dependent on imports of raw materials, they are likely to experience more sales both domestically and abroad.
According to the Washington Post, tourism in the UK is expected to flourish during this period. With the plunging of the pound, the British could consider this a good time for domestic travel. In parallel, an increase in international tourists could be expected, especially those stemming from countries with currencies that are soaring at the moment against the pound such as the US or Switzerland.
Sources used:
-Reuters: ‘Britain sends investors fleeing with historic tax cuts and borrowing’
-Guardian: ‘What does the pound’s slump mean for the UK and its consumers?’
-Washington Post: ‘The British pound just plummeted: What it means for the U.K., tourists’
-Reuters: ‘UK inflation hits 40-year record, highest in G7’
-BBC: ‘Falling pound: What does it mean for me and my finances?’
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