The British pound hit a new low against the dollar on Monday – the financial equivalent of a vote of no confidence in new Prime Minister Liz Truss.

Big picture: Britain’s unexpected 2016 Brexit vote to leave the European Union ushered in the current era of compounding global uncertainty.

  • The referendum tore apart long-established systems that had guided the country’s trade, economic policy and political relations.

Running News: The pound sterling – the cornerstone of London’s position as a global financial center – briefly fell to a new low of 1.04 against the dollar.

  • The pound is down more than 20% against the dollar this year.

In play: Capital exited British markets after the government presented its so-called mini-budget on Friday. Prices of government bonds – known as “gilts” – fell along with the currency.

  • Truss’ plans leaned heavily on tax cuts – meaning the government would have to borrow more – but did not appear to include much detail on how such borrowing would boost Britain’s long-term economic prospects.
  • Truss’ Conservative government – like many governments in Europe – is tasked with trying to manage rising inflation and an energy crisis.

yes but: Britain has had a rough ride in markets in recent days, but that doesn’t mean all government plans to deal with tough economic conditions will be treated equally.

  • Truss has repeatedly criticized prevailing economic orthodoxy and recently sacked one of the top civil servants at the UK Treasury, further unnerving investors.

What we’re looking at: If other governments announce efforts to run large deficits, they will receive truss treatment from financial markets.

Go deeper: UK tax cut proposals move across markets

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *