The pound crashes hitting expats hard and increasing recession fears

The pound crashes - Image Northuz / Shutterstock.com

The pound has crashed to a record low against the dollar following the mini-budget announced by the new Chancellor of the Exchequer, Kwasi Kwarteng.

The pound recovered a little on Monday, September 26 following record lows in response to a budget that is based on Prime Minister Liz Truss’ promise to grow the economy by slashing taxes.

With the fears of a recession in the UK growing the fall of the pound was quickly followed by a sell-off of assets, with experts believing that the Bank of England will be forced to push up interest rates sooner and faster than predicted.

But the UK is not alone in terms of inflation fears with the United States, Switzerland and Sweden all increasing their bank rate in the past few days. That move to drive inflation down has pushed stocks lower across many countries.

Although the pound had already fallen to near record lows, an announcement by the chancellor that he would be unveiling further cuts pushed the currency to an all-time low of $1.0350. The currency also fell to its lowest point against the Euro in more than two years.

Forecasters are now suggesting that the pound could reach parity with the dollar and that spells further bad news for inflation and consumers already hit by a cost of living crisis.

National Australia Bank’s Ray Attrill told news site RFI: “Whether or not the UK government announcement of the biggest tax reduction since 1972… will in time yield a significant growth dividend is not something markets are yet willing to contemplate.

“Instead, they were consumed by worries over the scale of near-term UK government financing needs, at a time when the current account deficit is running at more than eight per cent of GDP.

“Chatter about a possible UK sovereign rating downgrade has already begun.”

Former US treasury secretary Lawrence Summer pulled no punches in criticising the direction of the current government fiscal policy telling Bloomberg: “It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market.

“Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having (pursued) the worst macroeconomic policies of any major country in a long time.”

The news that the pound crashed in response to the mini-budget will send shivers down the spine of expats who will see a significant fall in their income, and to locals who will see the inflation rate shoot up again as the cost of dollar-based commodities rises.


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Written by

Peter McLaren-Kennedy

Originally from South Africa, Peter is based on the Costa Blanca and is a web reporter for the Euro Weekly News covering international and Spanish national news. Got a news story you want to share? Then get in touch at [email protected]

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