Pound sinks as UK economic uncertainty rises

Date:

Pound sinks as UK economic uncertainty rises

  • News by AUN News correspondent
  • Friday, October 21, 2022.
  • AUN News – ISSN: 2949-8090

Summary:

  • According to data from the Office for National Statistics, consumers are purchasing fewer items than they did prior to the coronavirus outbreak (ONS). Official data shows that retail sales dropped 1.4% last month, which was worse than expected and continued a downward trend that began in August.

  • The Office for National Statistics (ONS) says that borrowing, which is the difference between spending and tax income, was £20 billion last month, which is £2.2 billion more than a year ago.

  • Energy costs are anticipated to exceed £4,000 in April.

  • This is “roughly £100 billion more than the OBR expected,” he said.

  • He said that government borrowing will “only get worse after October.

On Friday, the pound dropped against the dollar as fresh data painted a bleak picture of the UK economy.

After gaining on Thursday when Prime Minister Liz Truss announced her resignation, the pound fell to $1.11.

Government borrowing increased to its second-highest September on record, according to official statistics.

According to data from the Office for National Statistics, consumers are purchasing fewer items than they did prior to the coronavirus outbreak (ONS).

Official data shows that retail sales dropped 1.4% last month, which was worse than expected and continued a downward trend that began in August.

The pound recently fell following a period of erratic trading for the currency.

Last month, it hit a record low versus the dollar, while the cost of borrowing money from the government shot up after the mini-budget. The government’s pledge of large tax cuts without a plan for how to pay for them alarmed investors.

On Friday, the cost of borrowing money from the government also increased marginally.

Jane Foley, a currency strategist at Rabobank, said that investors were reacting to both the bad economic and political news.

Even though the pound went up yesterday after Truss resigned, I think investors now know that there is no guarantee that the Conservative leadership election will lead to a decision that is good for the market.

The Treasury said that the Chancellor, Jeremy Hunt, would release his plan for the economy on October 31. However, there are rumours that the leadership election may cause a delay.

The pound, according to Ms. Foley, was also experiencing similar uncertainty.

“The markets will suffer more as long as the uncertainty persists.”

Why is a decreasing pound significant?

Because it costs more for UK businesses to purchase items like food, raw materials, or parts from other countries when the pound is weaker versus other currencies like the dollar or the euro, for example, the price of goods and services imported into the UK rises when its value falls.

A lower pound might make costs rise even faster if businesses decide to raise prices for customers despite rising costs. Changes in the value of the pound have an impact on travellers’ ability to go abroad.

Buyers are buying less

The Office of National Statistics (ONS), which provided the data, says that consumer spending has gone down since the outbreak.

“Retailers told us that the drop in September was partly because many stores were closed for the Queen’s funeral, and it was also because consumers were being careful about their purchases because of rising prices,” he said.

With prices rising faster than average income, the cost of living problem is still putting pressure on household finances.

Energy costs

The UK is borrowing billions of pounds to keep energy bills from going up for people and businesses.

The Office for National Statistics (ONS) says that borrowing, which is the difference between spending and tax income, was £20 billion last month, which is £2.2 billion more than a year ago.

According to the ONS, it is the second-highest September borrowing since monthly data has been kept since 1993.

According to the report, the number is lower than it was in September 2020, at the height of the coronavirus pandemic, when the government was borrowing money to pay for programmes like furloughs.

  • Energy costs are anticipated to exceed £4,000 in April.
  • From April, energy bill assistance will be cut.
  • Bills are difficult for millions of individuals to pay.

Rising levels of borrowing

But economists warn that government borrowing is likely to go up even more in the near future.

The Office for Budget Responsibility (OBR) makes independent predictions about how government actions, such as decisions about taxes and spending, will affect borrowing and growth.

On October 31, when the chancellor is supposed to release his economic plan, which will include its spending goals, it will give its most recent forecast.

Carl Emmerson, Deputy Director of the think tank Institute for Fiscal Studies (IFS), said that government borrowing for the first half of the year was almost as expected, but he warned that it was likely to go up much more.

However, since the enormous expense of government subsidies for home and commercial energy use only started in earnest this month, this is little indication of how much borrowing will be over the course of this financial year.

This year, borrowing could add up to about £200 billion, according to the IFS. This is “roughly £100 billion more than the OBR expected,” he said.

  • What tasks are handled by the Office of Budget Responsibility?

Michal Stelmach, a senior economist at KPMG UK, also issued a warning. He said that government borrowing will “only get worse after October.”

He said this was because of the government’s energy price guarantee for homes and businesses, as well as the second cost of living payment and help for retirees.

The chancellor, Jeremy Hunt, said, “I’ve been clear that if we want to protect our public finances and keep markets stable, we’ll have to make hard choices.”

“We will take all necessary steps to put the public finances on a sustainable path as we build the economy and to drive down debt in the medium term and to ensure that taxpayers’ money is effectively spent.”

Analysis by: Advocacy Unified Network

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