Irish Examiner view: British playing a risky game

Concerns over plummeting pound
Irish Examiner view: British playing a risky game

The pound has hit an historic low against the dollar.

Since last Friday’s €50bn fiscal giveaway by British chancellor of the exchequer, Kwasi Kwarteng, the UK has seen the pound hit a historic low against the dollar, and yesterday nervous markets pushed the currency to a historic low before a brief recovery.

A resounding rejection by the market of the British government’s plans for tax cuts and borrowing also saw the value of government bonds plummet and yields surge, sending the cost of borrowing to new highs.

The 10-year yield, which influences mortgages, business loans and other types of debt, hit its highest level in 10 years.

Government plans, as laid out by Mr Kwarteng last week, to grow the economy quickly via deregulation and tax cuts will require tens of billions of pounds in extra borrowing at a time of rising interest rates and high inflation, and is seen by analysts as a big gamble.

The British government is rolling the dice to see if tax cuts, deregulation, and free-market economics will reignite growth, but the move has unnerved an already shaky global market fearful of the effects of an energy crisis, surging inflation, and widespread recession.

British stocks, bonds, and the pound have been plummeting, increasing fears that government borrowing is set to go stratospheric and setting markets on edge about the state of the UK’s public finances.

The Bank of England’s reaction last night, saying it would do whatever is necessary to shore up the pound and that interest rates would be raised as necessary to return inflation to the 2% target set by the bank, was widely viewed as flawed.

These are not normal times and that fact, it is to be hoped, will be to the fore in Irish minds as the Government here announces its budget today.

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