Pound tumbles against dollar after Hunt’s budget sparks market fears

Jeremy Hunt announces changes to measures from mini-budget

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Following Jeremy Hunt’s statement in the House of Commons, sterling dropped more than 1.2 percent, hitting a value of 1.177 dollars.

The currency was also 0.5 percent lower against the euro, hitting 1.14.

FTSE 100 Index was 0.7 percent lower at 7301.8.

Mike Owens, Senior Sales Trader at Saxo UK, said that while the pound rebounded in the early weeks of Rishi Sunak’s administration, the budget “nevertheless paints a bleak picture of the state of the UK economy”.

Mr Hunt said he was delivering a “balanced path to stability” which involves “taking difficult decisions”.

He also appeared to dig at the disastruous mini-budget of Kwasi Kwarteng and Liz Truss, commenting: “unfunded tax cuts are as wrong as unfunded spending”.

This could be read as a comment on the widespread tax cuts put forward by the pair, which saw the pound plunge to its lowest-ever level against the dollar and forced the Bank of England to intervene to save the value of pension funds across the country.

On personal taxes, Mr Hunt said he would reduce the threshold at which the 45p rate becomes payable from £150,000 to £125,140.

He said: “Those earning £150,000 or more will pay just over £1,200 more a year.”

The Chancellor clarified that while these decisions would result in a “substantial tax increase”, he was not raising the headline rates of taxation. Tax as a percentage of GDP is set to increase by 1 percent over the next five years.

Regarding public spending, he said that this will grow “slower than the economy”.

Mr Hunt said: “For the remaining two years of this Spending Review, we will protect the increases in departmental budgets we have already set out in cash terms. And we will then grow resource spending at 1 per cent a year in real terms in the three years that follow.”

In total, Mr Hunt set out a package of around £30 billion of spending cuts and £24 billion in tax rises over the next five years.

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Shadow chancellor Rachel Reeves said “the mess we are in is the result of 12 weeks of Conservative chaos but also 12 years of Conservative economic failure”.

Fawad Razaqzada, market analyst at City Index and Forex.com, said: “Tax hikes are going to chock any chances of economic growth that there might be, with the UK economy set to plunge into a recession amid soaring prices. As household incomes continue to get squeezed, spending falls, company revenue and profit are going to get a hit.

“Against this backdrop, it is very difficult to be optimistic on the UK stock markets or the pound. The FTSE’s struggles to add to its gains from the previous week suggests investors are more worried about a deteriorating domestic, eurozone and global economies.”

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