The falling value of the pound is set to intensify the UK’s cost-of-living crisis and push more people into poverty, the government has been warned.
Sterling plummeted to its lowest level against the dollar in history on Monday morning, dropping more than 4 per cent, as the markets responded nervously to the announcement of Britain’s ‘mini budget,’ which has ushered in the nation’s biggest tax cuts in 50 years.
Chancellor Kwasi Kwarteng was accused of “fanning the flames” of the tumbling pound by hinting at fresh “unfunded” tax cuts over the weekend, while campaigners and charities accused the government of “gambling with the economy”.
The Institute for Public Policy Research (IPPR), a UK think tank, said the fall in the pound will “worsen inflation and lengthen the cost-of-living crisis”, which is already expected to deepen over the winter months as energy consumption increases.
The pound‘s tumble makes it more expensive to import goods and commodities, such as food, clothes, oil and gas.
Dr George Dibb, head of the Centre for Economic Justice at the IPPR, said: “Given the UK imports lots of products, when the exchange rate falls those things become more expensive.
“This’ll be particularly concerning for essentials like food which are already contributing a lot to inflation.
“It’s worth remembering that this is happening as a direct consequence of the governments economic policies — this is a choice.”
Gary Smith, general secretary of the GMB Union, said that a weaker pound is “going to mean less money in everyone’s pockets — on top of rampant inflation and the worst cost of living crisis in a generation.”
He added: “The plummeting pound and the UK’s tanking economy are the direct result of this chancer chancellor gambling with the economy.
“It’s a disaster for the UK public and this shambolic administration must carry the can.”
Neither Mr Kwarteng nor prime minister Liz Truss are currently expected to publicly address the major market shift, with the PM’s official spokesman telling reporters on Monday that Downing Street would not be commenting on market fluctuations.
He said: “I think that the chancellor has made clear that he doesn’t comment on the movements around the market, and that goes the same for the prime minister.
“The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus.”
Nonetheless, financial markets have been dominated by speculation that the Bank of England may need to increase rates by as much as one percentage point to 3.25 per cent to steady the falling pound, less than a week after a rate rise to 2.25 per cent and before its next scheduled meeting in November.
The chancellor, the Downing Street spokesman said, speaks “regularly” to the governor of the Bank of England, but declined to say whether Mr Kwarteng planned to arrange a meeting as a matter of urgency.
Sabine Goodwin, coordinator of the Independent Food Aid Network, which represents food banks across the UK, said: “The weakening pound will inevitably further compound the financial pressures low-income households are facing just as the cost-of-living crisis is deepening already entrenched poverty in the UK.
“Independent food banks are struggling to cope with growing demand and are having to reduce the amount of support they can give.
“The chancellor’s mini-budget has effectively dealt multiple blows to the poorest members of our society just at a time when the Government should focus its attention on boosting and rebuilding our fragile social security system.”
Labour’s Rachel Reeves said on Monday she was “extremely worried” about the latest slump in the pound. She said Ms Truss and Mr Kwarteng were “behaving like two gamblers in a casino chasing a losing run”.
The Labour frontbencher said the chancellor had been “fanning the flames” of the pound’s decline by talking up more tax cuts. “The chancellor instead of doubling down on his position on Friday needs to now set out credible plans,” she told BBC Radio 4’s Today programme.
