British pound plummets to new lows against US dollar

FILE- Pedestrians pass a currency exchange sign outside a shop in London, Sept. 23, 2022. The British pound has resumed a slide against the U.S. dollar that picked up pace last week after the U.K.’s new government outlined plans to cut taxes and boost spending. (AP Photo/Kirsty Wigglesworth, File)

LONDON (AP) — The British pound fell to all-time low against the U.S. dollar early Monday after Treasury chief Kwasi Kwarteng pledged further tax cuts, fueling concerns about the government’s economic policy.

The pound fell as low as $1.0373, before rallying to $1.0672 in early London trading. It was its lowest level since the decimalization of the currency in 1971.

The British currency has lost more than 5% against the dollar since Friday, when Kwarteng announced the biggest tax cuts in 50 years at the same that the government is planning to spending billions of pounds to help consumers and businesses struggling with high energy bills. That sparked investor concern about spiraling government debt.

Kwarteng and Prime Minister Liz Truss, who took office three weeks ago, are betting that lower taxes and reduced bureaucracy will spur economic growth and generate enough additional tax revenue to cover government spending. Economists suggest it is unlikely the gamble will pay off.

Opposition Labour Party economy spokeswoman Rachel Reeves said Kwarteng had “fanned the flames” of instability by talking up more tax cuts, and said the government’s policies were “reckless.”

When grilled about his economic policy on Sunday, Kwarteng said he believed the government was acting responsibly.

“There’s more to come,” he said in an interview with the BBC. “We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it is the British people that are going to drive this economy.”

At the same time it is cutting taxes, the government has announced plans to cap electricity and natural gas prices for homes and businesses to help cushion price rises triggered by the war in Ukraine.

This program will cost 60 billion pounds, and the government will borrow to finance it, Kwarteng said Friday.

He said Sunday this this was the right policy, because the government needed to help consumers squeezed by the unprecedented pressures caused by Russia’s invasion of Ukraine and the COVID-19 pandemic.

Britain can afford this because its debt as a percentage of gross domestic product is the second lowest among the Group of Seven large industrial economies, Kwarteng said. The government will in the coming months announce plans for reducing the nation’s debt, he said.

“Obviously, I will be setting out plans for the medium-term fiscal plan, as we’re calling it, that will show that we’re committed to net debt-to-GDP to be falling over time,” Kwarteng said.