After tax cuts in UK, pound nosedives to a historic low against dollar. See details

Market reactions to the UK's most significant tax cuts in five decades have forced the pound to nosedive to a historic low against the dollar.

The pound's value dropped to about $1.03 before rising to $1.08 on Monday. In anticipation of a rise in borrowing, Chancellor Kwasi Kwarteng has vowed additional tax cuts on top of the £45 billion package he declared on Friday.

Markets speculation on an emergency interest rate hike was rife as the cost of borrowing for the UK government increased. According to economists, the Bank of England may conduct an emergency meeting this week to hike rates to prevent the pound from sinking and curb rising inflation. This will be less than a week after the Bank raised interest rates by a half-point to 2.25%, prior to its next meeting on November 3.


Interest rates may rise and reach as high as 5.5 per cent by the spring next year, according to market observers. The seventh consecutive rate hike in September brought rates to their highest level in 14 years. For millions of homeowners, a further hike would mean higher monthly mortgage payments.




The price of other imported commodities could also rise significantly, escalating the already high inflation rate.

Additionally, British visitors to America will discover that their travel budgets are not as generous as they were prior to the fall of the pound.

Prime Minister Liz Truss and the chancellor did not comment on the falling value of the pound.

While the UK economy has impacted the pound, it has also seen pressure from the dollar's surge. Other currencies have been losing ground to the dollar, and amid worries about the possibility of a recession, the euro hit a new 20-year low against the US currency.

FAQs

1. Why is the weakening of pound important?
   The falling pound will directly affect foreign currency trade, oil and gas price, household finances, foreign holidays, imported commodities, among many others. Things will be costlier when you travel abroad.
2. Who is Kwasi Kwarteng?
   As chancellor, Kwasi Kwarteng will deliver the government's mini-budget on Friday. He is a long-time friend and political partner of the incoming prime minister, Liz Truss.