The pound began to fall again on foreign currencies on Wednesday afternoon as the escalating political turmoil in Westminster unnerved investors. By early Wednesday afternoon sterling was down almost a third of a cent against the dollar at $1.1888, its lowest level since the start of the pandemic more than two years ago. The British currency was slightly stronger in early trade after yesterday’s big drop. The pound is now 12 percent lower against the dollar than at the start of the year. In addition to uncertainty over Boris Johnson’s survival and new Chancellor Nadhim Zahawi’s economic policy, markets are worried about rising energy prices, soaring inflation and the growing risk of a recession. Some investors are even placing a bet in the options market on the pound falling below its all-time low of $1.054 against the dollar on February 25, 1985 later this year, although that is still seen as a remote chance.
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The pound’s fall came hours after Mr Zahawi on Wednesday left behind the prospect of more tax cuts as Boris Johnson fought for survival. He emphasized that the crisis-stricken prime minister had entrusted him with the “reconstruction” and “development” of the economy. “The most important thing is to rebuild the economy after the pandemic and continue the growth and tax cuts,” he told Sky News. “We’re delivering the first tax cut in a decade today, I’m determined to do more.” He insisted he would not be fiscally reckless and would follow “the evidence” when it comes to financial decisions. But he said “nothing is off the table” when it comes to tax cuts and other measures to stimulate the economy. His comments came after a Bank of England chief warned that Britain’s economic growth would be “flat” next year as millions of households are forced to cut back on spending. Sir Jon Cunliffe, the BoE’s deputy governor for financial stability, also made it clear that its Monetary Policy Committee would be ready to raise interest rates to tame soaring inflation. However, he tried to reassure people across the country that the economic squeeze would not be like that of the 2008/09 financial crisis. He told BBC Radio 4’s Today programme: “This is a very different kind of shock to the financial crisis. “The economic crisis was followed by a very deep and very long recession. “What we expect is that the cost of living squeeze will really hit people’s spending and that will start to cool the economy. “We can see signs that the economy is already slowing and we predict that in the next year or so economic growth will be flat. “But this is a very different picture from the picture we saw in 2009-2011. “It’s a picture of a slow economy, where people can’t spend, they’ve cut back on spending because of the cost of living.”
