Stocks in London and the British pound fell on Wednesday morning – after the International Monetary Fund (IMF) and credit rating agency Moody’s reprimanded the British government over planned tax cuts they say could worsen inequality and hamper the country’s economic growth – reversing some of its recovery. After the currency plunged to its historic low earlier this week.
Sterling fell against the dollar on Wednesday, slipping below $1.07, weak by historical standards, but well above the record low of $1,035, and sank until Monday after Treasury Secretary Kwasi Quarting announced plans last week to borrow billions in order to cancel higher rate him. Income tax and family support with increased energy costs.
The FTSE 100, an index made up of shares of the 100 largest companies listed in the UK, fell 2% during trading on Wednesday morning.
The International Monetary Fund, an international organization of 190 member states that works to stabilize the global economy, has warned that plans for massive unfunded tax cuts and huge increases in public borrowing could fuel inflation and deepen inequality.
The organization said it was “closely monitoring” developments in the UK and urged the government to “re-evaluate” its policies, particularly those that “benefit high-income earners”.
The International Monetary Fund, which rarely publicly criticizes advanced economies, is not alone in expressing concern about Britain’s financial policies, and credit agency Moody’s warned that the policies could slow the country’s economic growth and “permanently weaken” the country’s debt sustainability.
Moody’s raised the prospect of a future UK credit rating downgrade and lowered its 2023 GDP growth forecast from 0.9% to 0.3%.
Kwarteng, who was tasked with leading the Treasury by newly inaugurated Prime Minister Liz Truss, announced a new economic strategy that included sweeping tax cuts - which significantly benefit better-off people and eliminated the higher rate of income tax - lowering bankers' caps. . Bonuses and plans to control rising energy costs. It has spooked investors and caused the market to crash, prompting the Bank of England to raise the possibility of significant rate hikes to regain control.
What we don't know
The impact of the UK's economic plans. Truss pledged to deliver a quick "emergency budget" to tackle high inflation and a cost-of-living crisis when he entered Downing Street earlier this month. However, the plans - one of the largest tax cut packages in decades - were later labeled a "financial event" and came without the usual economic forecasts that accompany budgets. Truss has been criticized for this and accused of using another term to avoid scrutiny. A full forecast is expected along with the next budget in late November.
Pound falls to record low against the US dollar after UK signals more tax cuts (Forbes)
Is Britain now in a complete economic crisis? (financial times)
The IMF: What is it and why is it important? (BBC)