TOKYO: Sterling tumbled nearly 5 percent to an all-time low as investors ran for exits after new government’s fiscal plan threatened to stretch Britain’s finances to their limits.

Currency dived as much as 4.85 percent to an unprecedented $ 1.0327 extending a 3.61 percent dive from Friday, when finance minister Kwasi Kwarteng unleashed historic tax cuts and biggest increase in borrowing since 1972 to pay for them.

Economists and investors said Prime Minister Liz Truss’s government, in power for less than three weeks was losing financial credibility in unveiling such a plan just a day after Bank of England hiked interest rates to contain surging inflation. Sterling was last down 2.7 percent at $ 1.0560. Marc Chandler, chief market strategist at Bannockburn Global Forex called currency’s record plunge “incredible”.

“Weekend press tarred and feathered sterling with assertions of its emerging-market status,” he said. “I don’t buy that schadenfreude. Still, there is now bound to be speculation of an emergency BOE meeting and rate hike.”

Kwarteng’s announcement marked a step change in British financial policy, harking back to Thatcherite and Reaganomics doctrines of 1980s that critics have derided as a return to “trickle down” economics. British government bond yields surged by most in a day in more than three decades on Friday, with yields on five-year gilt-one of most sensitive to any near-term shift in interest rate or borrowing expectations-up by half a percentage point.

Published in The Daily National Courier, September, 27 2022

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