England is struggling with what’s being called a “doom loop” as stock markets sink and the British pound
falls to new all-time lows against the U.S. dollar.
The market meltdown comes after new British Prime Minister Liz Truss’s government announced a series
of tax cuts to help citizens struggling with high energy prices and other inflationary pressures.
The British pound hit an all-time low against the U.S. dollar on Monday (September 26), falling below
$1.04 U.S., while the British 10-year bond yield rose to its highest level since the 2008 financial crisis.
The Bank of England said it is monitoring market developments and would not hesitate to hike interest
rates to return inflation to its 2% target, an announcement that further pressured markets.
Truss announced late last week widespread tax cuts not seen in Britain since 1972. The tax cuts set the
U.K. at odds with other developed economies that continue to combat inflation that is running at 40-year
highs in most jurisdictions.
The British governments fiscal package, which includes £45 billion (Cdn $66 billion) in tax cuts and £60
billion in energy support to households and businesses over the coming six months, will be funded by
borrowing at a time when the Bank of England is lifting interest rates to their highest level in a generation.
Truss says that her goal is to boost growth through tax and regulatory reform, even suggesting that more
tax cuts could be on the way. However, the plan has drawn widespread criticism.
Critics have accused Truss of gambling with the United Kingdom’s fiscal stability. Some Conservative
Members of Parliament have gone so far as to submit letters of no confidence in Truss three weeks into
her tenure as Prime Minister.
Truss said further clarity on her fiscal plan will be made clear in an upcoming mini budget that her
government introduces in Parliament.