The British Pound has plummeted to a 37-year low, falling to $1.09 as financial markets give their response to the UK Government's tax cuts, announced by Chancellor Kwasi Kwarteng Friday morning. It also depreciated against the Euro, falling to €1.12.
The Pound dropped as financial stakeholders showed extreme caution about the huge amount of borrowing needed to fund the government's plans.
In Parliament, Kwarteng announced a number of tax breaks, including ditching the 45% higher income tax rate and cutting the basic rate from 20% to 19% from April 2023.
Kwarteng also dropped a planned increase in corporation tax from 19% to 25%.
Gloomy business outlook
Yet despite this apparent good news for corporations, UK business confidence has hit its lowest levels since the beginning of the pandemic in May 2020. Business executives are worried about the drop in business and a surge in costs.
"Business activity across the UK private sector fell at the fastest pace since January 2021 in September," said Dr John Glen, CIPS Chief Economist in a press statement.
"Nerves about the strength of the UK economy have been battered further by cost of living pressures causing households to restrain spending... Even with rates of inflation moderating since August, they are among the highest since the survey began in 1998."
Chief Business Economist at S&P Global Market Chris Williamson added that the "downturn is likely to intensify" into winter as the Bank of England increases interest rates as the UK heads into a recession.