The pound began falling again on the foreign exchanges on Wednesday afternoon as the deepening political turmoil at Westminster unnerved investors.
By early Wednesday afternoon sterling was down nearly a third of a cent against the dollar at $1.1888, its lowest level since the start of the pandemic more than two years ago.
The British currency had been slightly stronger in early trading following yesterday’s big fall. The pound is now 12 per cent weaker against the greenback than at the start of the year.
As well as the uncertainty over Boris Johnson’s survival and new Chancellor Nadhim Zahawi’s economic policy, the markets are worried about rising energy prices, soaring inflation and the growing risk of recession.
Some investors are even taking a gamble in the option market on the pound falling below its all-time low against the dollar of $1.054 on 25th Feb 1985 later this year although this is still seen as a remote chance.
The pound’s drop came just hours after Mr Zahawi on Wednesday dangled the prospect of more tax cuts as Boris Johnson battled for survival.
He stressed that the crisis-hit Prime Minister had tasked him with “rebuilding” and “growing” the economy.
“The most important thing is to rebuild the economy post-pandemic, and to get growth going again, and tax cuts,” he told Sky News.
“We are delivering the first tax cut in a decade today, I’m determined to do more.”
He insisted he would not be fiscally reckless and would follow the “evidence” when it comes to economic decisions.
But he said “nothing if off the table” when it comes to tax cuts and other measures to boost the economy.
His comments came after a Bank of England chief warned that Britain’s economic growth will be “flat” over the next year as millions of households are forced to cut back on spending.
Sir Jon Cunliffe, BoE deputy governor for financial stability, also made clear that its Monetary Policy Committee would be prepared to raise interests to tame sky-rocketing inflation.
However, he sought to reassure people across the country that the economic squeeze would not be like that of the 2008/09 financial crisis.
He told BBC Radio 4’s Today programme: “This is a very different type of shock to the financial crisis.
“The financial crisis was followed by a very deep and very long recession.
“What we expect is the cost-of-living squeeze will actually hit people’s spending and that will start to cool the economy.
“We can see signs of the economy is already slowing and we forecast over the next year or so pretty much economic growth will be flat.
“But that’s a very different picture to the picture we saw 2009-2011.
“It’s a picture of a slow economy, where people can’t spend, they have cut back on spending because of the cost-of-living.”
