Investors have been reluctant to accept the British government’s plan to revive the domestic economy. If implemented, there is a real fear that it will hit the UK public finances hard. The Bank of England has begun to monitor developments on the financial markets very closely.
The pound continues to fall
During Monday’s trading, the British pound continued the decline that began on Friday. The pound had lost 3.6 percent against the dollar over the weekend and extended its losses on Monday. It fell to the weakest level against the dollar in its history, when one pound could be obtained as low as $1.047. Later, the pound strengthened slightly to $1.08 per pound.
Investors don’t like the British government’s plan
“British markets have once again reacted strongly to the fiscal generosity of Liz Truss’s cabinet,” Derek Holt, head of capital markets at Scotiabank, told Reuters. According to him, investors fear that the British government’s plan to support the economy will further increase inflationary pressures, which will then force the Bank of England to react more sharply in the form of interest rate hikes. This, last but not least, increases the risk of recession of the island economy. However, any further increase in interest rates will counteract the current weakening of the British pound.
