Investors are reacting to the new government’s budget plan, which caused the drop.
The drop is a result of how investors feel about the new government’s plan for the economy.
On Monday, the British pound sterling fell nearly 5% against the US dollar, which was its lowest level ever. The currency fell as much as 4.85%, reaching a new low of $1.0327. This was on top of a drop of 3.61% on Friday.
Market analysts say that finance minister Kwasi Kwarteng’s announcement last week of a “mini-budget” with historic tax cuts and the biggest increase in borrowing in over 50 years is to blame for the drop.
“The pound is in danger because traders are turning away from everything British. A market analyst at Equiti Capital, David Madden, told The Guardian that there is a growing fear that the government’s plans to borrow more money will put a huge strain on the UK economy.
The announcement, which came a day after the Bank of England raised interest rates to stop inflation, is seen as a threat to the government’s financial credibility. When the pound falls in value, the cost of imports goes up, which adds to inflation pressures in the medium term. Many analysts say that most British people won’t get much help from tax cuts because their energy bills will go up and their mortgages and loans will cost more.
Some economists think that if the pound keeps falling, the Bank of England might have to raise interest rates to keep the pound from falling further. They think that UK interest rates will double by next summer, going up to more than 5%.