Following the disastrous rollout of the new Prime Minister’s “mini-budget,” the UK pound sterling fell on Thursday, off news Fitch has downgraded the outlook for the country to “negative.”
The pound dropped almost 1% vs the US dollar, at $1.122 as of 14:33 GMT. The pound had plummeted to a record low against the dollar last month, as gilts fell the most in decades, forcing the Bank of England to intervene to the tune of £65 billion (almost $73 billion) to try and stabilize the markets.
In a statement on Wednesday, Fitch said, “The large and unfunded fiscal package announced as part of the government’s growth plan could lead to a significant increase in fiscal deficits over the medium term.”
Just days earlier, Standard & Poor’s rating agency had made a similar downgrade.
Fitch noted that the lack of any independent forecasting of the budget, as well as the fact the government policy appears to be in direct conflict the the Bank of England’s monetary policy had “negatively impacted financial markets’ confidence and the credibility of the policy framework, a key longstanding rating strength.”
Kwasi Kwarteng, the UK Finance Minister, had originally announced on September 23rd the government’s plan for £45 billion ($51 billion) in unfunded tax cuts, as well as other measures and energy subsidies which were aimed at producing economic growth, dubbed the “mini-budget.” On Monday it was announced that amid strong criticism, the government had decided to abandon the tax cuts for wealthier British citizens, which were to have cost the government £2 billion ($2.2 billion) a year.
However the plan is still seen as operating in direct conflict with the Bank of England’s efforts to tame inflation by tightening the money supply.
The Daily Financial Trends
