Pound sinks to new low amid concerns over tax cuts
Britain's pound plunged to record lows on Monday and bonds were slammed for a second day, as investors punished UK assets after the government's mini-budget announcement last week. On Friday, finance minister Kwasi Kwarteng announced he was scrapping the country's top rate of income tax and cancelled a planned rise in corporate taxes, all on top of a hugely expensive plan to subsidise energy bills for households and businesses. British government bond yields ripped higher in response, rising by the most in a single day in decades on Friday, as investors ditched gilts, while London-listed blue chips hit their lowest since early March. Kwarteng on Sunday dismissed the freefall in the pound, saying his strategy was to focus more on longer-term growth and not short-term market reaction. In Asian trading on Monday, the pound fell by as much as 5 percent against the US dollar at one point to a low of US$1.0327, its weakest at least since the introduction of decimalisation in the early 1970s. "The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying: 'That's not going to work,' on steroids," said Michael Every, a strategist with Rabobank Singapore. "This doesn’t feel like a currency crisis, where the decline in a currency worsens the situation. Sterling needs to decline considering the deficits and the uncertainty around what the Bank of England will do, but at some point, it will fall to a level where the attractive return prospects it creates improves the prospects of economic and financial flows," said Samy Chaar, chief economist of Lombard Odier in Geneva. (Reuters)