“Injecting demand into this high-inflation economy leaves the government pulling in the exact opposite direction to the Bank of England, who are likely to raise rates in response,” said the U.K.’s Institute for Fiscal Studies (IFS) in its response to the plan. “Lower taxes lead to economic growth, there is no doubt in my mind about that,” Truss said, just before the economic plan was announced.īut the Growth Plan threatens to amplify inflation by putting more cash into consumers’ hands and increasing their demand for goods and services. It includes income tax breaks that favor the nation’s highest wage earners, and the plan scraps a scheduled increase in corporate taxes. The 2022 Growth Plan makes good on new Prime Minister Liz Truss’s campaign promise to cut taxes. Why Is the Pound Falling?Ĭhancellor Kwarteng’s announcement signaled an alarming reversal in economic policy, one that frightened traders and investors and caused a drop in the value of the pound. consumers, the shift in currency values could have different implications. While the pound has since slightly recovered from its drop, Kwarteng’s announcement sparked fears that England will soon face worsening inflation and accelerate toward a recession. The GBP dip came just days after Britain’s newly appointed chancellor, Kwasi Kwarteng, announced the new administration’s 2022 economic Growth Plan, which is set to include the country’s most sweeping tax cuts in 50 years. The pound fell to $1.03 on September 26, hitting an all-time low against the U.S.

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