NextGen Day

Just 19 days after Prime Minister Liz Truss and her administration assumed office, the British pound hit a record low versus the US dollar on Monday morning.

The new administration and its tax cuts, which would favor affluent earners more than the working class, are to blame, according to many economists and politicians.

According to calculations, reducing income tax for individuals earning over £150,000 (USD159,876) annually from 45 percent to 40 percent will result in a revenue loss of over £45 billion over the following five years.

For lower-income workers, income tax has decreased from 20 percent to 19 percent, a relatively lesser reduction for a group facing the brunt of the UK’s rising cost of living crisis brought on by soaring inflation and energy prices.

The government claims that its actions, which mark the largest tax cuts in the UK in more than 50 years, will encourage borrowing and boost the economy.

As Monday came to a close, the pound’s value increased marginally. Still, the gains were short-lived because the Bank of England (BoE) reiterated that it “would not hesitate to alter interest rates by as much as needed” to bring inflation under control.

In light of the large repricing of financial assets, BoE governor Andrew Bailey stated that the bank is “watching developments in financial markets extremely closely.”

The pound has fallen from 1.17 to 1.07 versus the dollar in the four days since the Truss government announced its mini-budget, dealing a fatal blow to a currency that has routinely fallen over the past eight years in the face of economic difficulties.

Pandemic, conflict, inflation, and Brexit

Less than ten years before the June 2016 EU membership referendum, the British pound was valued at more than USD2 in 2007.

The currency rate crashed from USD1.50 to USD1.33 in a matter of hours after the British opted to leave the EU, ending the year at USD1.22.

By the time the separation was officially consummated at the end of January 2020, it was worth USD1.31.

The pound value was comparatively constant between March 2020 and December 2021, hovering at about $1.35, despite declining trade with the EU and the consequences of the coronavirus disease 2019 (Covid-19) epidemic.

The UK’s inflation rate reached a four-decade high of 10.1 percent last month as a result of numerous issues, both domestic and international.

Before political turmoil was added to the nation’s already toxic mixture of labor shortages, rising energy costs, and a falling pound, the ruling Conservative Party informed Boris Johnson that his prime minister tenure had ended.

The energy shortage brought on by the conflict in Ukraine and the British government’s subsequent decision to cap energy prices has contributed to the nation’s inflation problems.

The value of the pound has decreased 22.01 percent over the previous 12 months, and according to the most recent projections, in a year, it will be worth approximately USD 1.021.

Added political difficulties

Truss and her administration will undoubtedly experience some serious political issues in the upcoming months and the following year, in addition to the triple danger of inflation, cost of living, and energy concerns.

A new Scottish independence referendum, which First Minister Nicola Sturgeon has frequently said will take place in 2023, is one of the impending challenges.

While London must approve of any such action, the Scots are certain that they can get around that specific obstacle through the legal system.

Like her predecessors, Truss has stated that the decision to remain a member of the UK was made by the Scottish people in 2014, indicating that she will oppose another vote on the matter.

Several pro-independence demonstrations in Scotland are scheduled for the remainder of the year, despite the apparent hostility of the federal government to the idea.

After the Irish nationalist party Sinn Fein, which has long called for unification with the Republic of Ireland, won the most seats in the May 5 elections, an executive has yet to be created in Northern Ireland.

Michelle O’Neill has been put forward by Sinn Fein, formerly thought of as the voice of the terrorist organization Irish Republican Army, which is no longer active.

Truss has been working on the Northern Ireland Protocol since her time as Johnson’s foreign secretary, but the opposing side, the Democratic Unionist Party (DUP), has been delaying joining any government until it is resolved.

The Conservative Party and the DUP claim that the protocol has established a sea border for trade between Northern Ireland and the rest of the UK, but the EU refuses to renegotiate it.

The results of last week’s census revealed that Catholics now outweigh Protestants for the first time since Northern Ireland’s creation in 1921, which is a significant development.

The nationalists, who believe the altered demographics increase the likelihood that a vote on unification, which can be held under the 1998 Good Friday Agreement, will pass, have hailed the results.

The future of the new prime minister is now just as dubious as that of the once-dominant British pound thanks to all of these factors.

Reports indicate that certain ruling party members who disagree with Truss’ monetary policies have already sent letters of no confidence to the 1922 Committee, which previously gave Johnson and his predecessor Theresa May their marching orders. These are the first indications of discontent.

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