The British pound was also affected by the announcement of the British Finance Minister, Kwasi Quarting, about tax cuts in the country, and support measures for families and companies, in addition to the British Debt Office setting plans to issue bonds during the current financial year of 72 billion pounds, or about 79.74 billion dollars, to finance the stimulus. .
Last week, the sterling recorded its largest decline in nearly two years against the dollar, after touching its lowest level in 37 years at 1.0840 dollars, before reducing its losses and settling at the 1.085 dollars.
Since the beginning of this year, the pound has fallen against the dollar by about 19.7 percent.
British bond yields rose, with benchmark 10-year bond yields rising to 3.829 percent, a level not seen since April in 2011.
The dollar index, which measures the performance of the US currency against a basket of currencies, including the euro, the pound sterling and the yen, rose strongly to the level of 113.23, to its highest level since May 2002.
It rose in the latest trading by 1.6 percent to 112.96, recording the largest weekly percentage rise since March 2020.
Ali Metwally, economist and risk analyst at London-based Infospectrum Consulting, said in statements to “Sky News Arabia” that the decline may dominate the performance of the pound sterling during the coming period and even during the next year, due to many factors, internal and external, affecting on the strength of the British currency.
He added that the most prominent factor is the expected recession that may affect the British economy during the fourth quarter of this year and its extension until the first quarter of next year, as it can be said, as he put it, that Britain’s economy has entered the stage of “technical stagnation” now.
Metwally pointed out that the economic plan announced by the British government headed by Liz Terrace, which will cost the government about 60 billion pounds, or about 68 billion dollars, in the energy sector, and about 45 billion pounds ($ 48.86 billion) in the form of tax cuts, affects Indeed, the strength of the British currency, because it weakens the financial position of the country, especially if it resorts to borrowing.
He stressed that the number allocated in the economic plan may double in the coming period, which means that the money supply may rise, and thus increase the weakness of the pound.
On the other hand, Metwally believes that there is a “relative” inconsistency between fiscal policy and monetary policy in Britain, as the government seeks to help citizens in the country, at a time when the Bank of England is working to raise interest rates in order to control high inflation rates.
He stressed that this is weakening investors’ confidence in the British economy, which can be said that it has already begun to decline, after it caught its breath with the waning of the consequences of the Corona pandemic.
And the weak investor confidence in the British economy has an immediate and direct impact on the pound, according to Metwally, who stressed that investors may reduce their holdings of the pound to acquire other currencies.
Metwally added that there are external factors affecting the strength of the sterling, represented in the rise in the strength of the dollar as a result of the increase in interest rates by the US Federal Reserve, in addition to the decline in demand for exports globally from many countries, including Britain.
All the above factors, according to Metwally, suggest that the average price of the pound sterling against the dollar will decline slightly over the next year to the level of $1.15.
No one knows how long the sterling will stay below the 1.08 level, according to Motwali, especially in the next few period, as the performance could improve over the next year if the government can attract investment to the country, and the Bank of England may raise interest rates at a stronger pace to curb Inflation, especially since the negative impact of the British stimulus plan on inflation outweighs the effect of raising interest rates.
He pointed out that the government plan extends until next April, which means that its impact will not be clear on the currency’s performance at the present time.
Metwally also ruled out that the Bank of England would be able to achieve its target levels of inflation at 2.5 percent, saying that inflation over the next year may range between 7 and 8 percent.
According to the British Office for National Statistics, consumer price inflation fell to 9.9 percent in August, compared to 10.1 percent in July, which is better than analysts’ expectations of 10.2 percent, according to Reuters.
Last week, the Bank of England raised key interest rates by 50 basis points for the second time in a row, to 2.25 percent.
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