(MENAFN) On Monday, the British pound sterling fell by about 5 percent to a record low versus the United States dollar. The value of the currency fell as high as 4.85 percent, reaching an unheard-of USD1.0327 and continuing a 3.61 percent decline seen on Friday.
Market observers attribute the decline to the finance minister Kwasi Kwarteng's release of a "mini-budget" last week, which included unprecedented tax cuts and the largest rise in borrowing in more than 50 years.
According to David Madden, a market analyst at Equiti Capital, “sterling is in the firing line as traders are turning their backs on all things British. There is a creeping feeling the extra government borrowing that is in the pipeline will severely weigh on the UK economy.”
It is believed that the decision, which came a day after the Bank of England raised interest rates to combat inflation, jeopardizes the government's ability to manage its finances. Import costs rise as a result of the weakened pound, adding to medium-term inflationary pressures. According to many economists, the bulk of British citizens would not benefit significantly from tax cuts because of increasing energy prices, as well as higher mortgage and borrowing rates.
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