Pound hits lowest value against dollar since 1985, during Thatcher government

THE lb currency fell to the lowest value in 37 years against the dollar this Wednesday (7), while the UK faces a series of overlapping economic problems with no easy solutions.

A looming recession, a disastrous energy crisis and the highest inflation among the countries of the G7 sent the pound sinking in 2021. The currency tumbled 0.5% to a low of $1.14 on Wednesday, lower than in March 2020, when the coronavirus pandemic. Covid-19 it started.

The fall took the currency to its lowest level since 1985, when Margaret Thatcher was prime minister.

About that, Liz Truss is in her first full day in office as the UK’s fourth prime minister since the vote on the Brexit in 2016, and it is already facing the barrel of a potential currency crisis.

Truss is considering a £150bn ($172bn) commitment to cap rising prices of energy that threaten to drive millions of Britons into poverty this winter as the cost of living soars.

However, she did not say how the country plans to pay the ransom. Truss campaigned for tax cuts and said on Wednesday that she opposes a new tax on energy companies that have made record profits during the recent surge in energy prices. fuels .

The UK borrowed heavily during the pandemic, but investors may soon turn up their noses at lending the country more money if it falls into a so-called stagflation cycle, in which the economy shrinks but prices keep rising.

This could encourage traders to continue to ditch the pound, making it harder for the import-dependent economy to maintain its payments and further pushing up the inflation .

The scenario could force the Bank of England to raise rates more aggressively, which in turn would hurt the country’s economy. The so-called balance of payments crisis is a potential, if not present, threat.

Truss is expected to reveal his expensive plan to cut energy prices on Thursday.

On Wednesday, it ruled out extending the 5 billion pounds ($6 billion) tax that former finance minister Rishi Sunak introduced in May to producers of Petroleum and natural gas from the UK to fund an earlier energy relief package.

“I am against an unexpected tax”, she told parliament . “I believe it is wrong to delay companies investing in the UK just when we need to grow the economy,” she added.