Source: Reuters
Authors: Amanda Cooper, Samuel Indyk and Harry Robertson
Article: Original article
Publication date: Tuesday, November 15, 2022
The new British Prime Minister Rishi Sunak and finance minister Jeremy Hunt are inching closer to the moment of truth.
British markets have bounced back after the economic and political turmoil seen in September. However, as the UK enters the recession, the outlook is becoming gloomy.
The pound was hit hard by former Prime Minister Liz Truss's stimulus package that included 45 billion pounds ($52.76 billion) in tax cuts by loading up on debt. It resulted in UK's market meltdown and exposed vulnerabilities in the pensions sector.
The British pound has recovered almost 15% from the record low of $1,033 seen late September, fueled by intervention by the Bank of England and re-election after Liz Truss resigned. Meanwhile, Britain's new finance minister Jeremy Hunt scrapped most of the tax cuts and other suggestions made on September 23.
The new plan will probably be different from the previous one. However, further tax rises and spending cuts aimed at filling a 50 billion pound hole in the country's public finances could cause pound to fall again.
According to StoneX market analyst Fiona Cincotta, the pound may tumble on fears that Hunt will opt for strict measures to plug this substantial hole in the country's public finances. This, in turn, will lead to markets turmoil. She also frets about the taxation of dividends and capital gains, given that a lot of small businesses contribute to the UK economy.
Edward Park, chief investment officer at Brooks Macdonald, highlighted the UK was suffering from rate hikes, and noted concerns about the housing market and Brexit.
He added that both domestic and international investors hesitated buying British stocks.
Forecast: GBPUSD and FTSE 100 fall
This content is for informational purposes only and is not intended to be investing advice.
