The United Kingdom is on the verge of recession and public finances are worrying investors.
On Monday, the pound Sterling hit its historic low against the dollar.
Faced with a resilient dollar thanks to its status as a safe haven, the pound plunged to 1.0350 dollars around 3:25 a.m. (French time), its lowest since 1971, the end of the Bretton Woods agreements and the adoption of a regime world of floating exchange rates.
In 1985, it had touched 1.0520 dollars, which was until then its historic low since the end of the peg of the currencies between them.
Around 9:30 a.m. (French time), the British currency had rebounded to 1.0743 dollars, but some analysts believe that it could reach parity with the dollar in the short term.
A budget “bigger than expected”
“Investors really hated the 'mini-budget' announced by the UK on Friday.
They expected a huge package of budgetary measures from the government of Liz Truss”, the new conservative Prime Minister, “but it turned out to be even bigger than expected”, notes Ipek Oskardeskaya, analyst at Swissquote Bank .
New Finance Minister Kwasi Kwarteng notably announced income tax cuts for the top tax bracket, in addition to those that had been distilled in the British media during the previous days.
In total, the tax cuts announced are the largest since the 1970s, accompanied by massive aid for energy bills in the midst of a crisis in the cost of living.
An additional loan of 72 billion pounds
The cost of this support for the cost of energy has been calculated at 60 billion pounds for 6 months only.
Economists put the whole tax package at between 100 and 200 billion pounds.
The whole should force the United Kingdom to borrow an additional 72 billion pounds on the markets, which worries operators.
Kwasi Kwarteng on Sunday played down the very negative market reaction to his "mini-budget" and accusations of favoring the better-off, saying his package of measures "helps people across the income scale".
Asked about the fall in the pound and the rise in borrowing rates, Kwasi Kwarteng simply replied that the UK needed to have "a more proactive approach to growth and that's what my statements were about. of Friday”.
“Who is going to finance all these expenses?
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Rachel Reeves, the opposition Labor finance spokeswoman, said she was "terribly worried" about the plunge in the pound.
“The markets ask: who is going to fund all this spending?
Borrowing rates on ten-year British debt securities have jumped 20% since last week,” adds Ipek Ozkardeskaya.
She adds that the Bank of England "should react with a 100 basis point hike in its rate at its next meeting to ensure that inflation does not get out of control because of the tens of billions of pounds entering the financial system.
Rise in interest rates
This should have lifted the pound, she believes, but investors instead shed the British currency.
For the analyst, “parity [with the dollar] is now almost certain”.
On Thursday, the Bank of England's monetary policy committee had raised its interest rate by 0.50 percentage points to 2.25%, in an attempt to counter inflation at 9.9%, the highest rate of the G7.
The monetary institute also estimated that the United Kingdom had entered into recession during the third quarter.
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