Latest UK mini-budget: Kwarteng scraps top 45% income tax rate

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The pound extended its decline to slide below $1.12, the currency’s weakest point since 1985, as the economy heads into a recession and the government prepares a mini-budget in which it promises a number of tax cuts.

Friday’s 0.75% drop takes the year’s decline to more than 17%, putting the currency on track for its worst year since 2008, when it lost more than a quarter of its value per month. against the dollar.

The pound’s fall on Friday outpaced the euro’s 0.6% decline against the dollar in early trading.

Line chart of the pound against the dollar in 2022 showing the fall of the pound sterling this year

Much of the move is due to the strength of the dollar, which is at its highest against a basket of peers since mid-2002, propelled by concerns about the global economy and aggressive interest rate hikes of the US Federal Reserve.

On Friday, the dollar index rose 0.5% to bring its monthly gains to 3%. The index rose 17% over the year.

Britain’s economy has weakened in recent weeks, with the Bank of England now estimating that it has contracted for two consecutive quarters in what would technically be a recession.

The central bank this week raised interest rates by 50 basis points to 2.25%, the highest since 2008, meaning borrowing will become more expensive for businesses and households. He expects inflation to peak at 11% in October, from 9.9% currently, a nearly 40-year high, which will further erode real household incomes.

UK Chancellor Kwasi Kwarteng will attempt to provide a shock cure for Britain’s sluggish economy on Friday, with a 30-point growth agenda to turn “the vicious cycle of stagnation into a virtuous cycle of growth”.

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