Pound hits record low as markets react to the UK tax cuts plans

As markets react to the UK's biggest tax cuts in 50 years, the pound has dropped to a record low against the dollar.

Chancellor Kwasi Kwarteng has promised more tax cuts on top of a £45 billion package he announced on Friday, amid expectations borrowing will surge. The cost of UK government borrowing also continued to climb on Monday.

If the pound stays at this low level against the dollar, imports of commodities priced in dollars, including oil and gas, will be more expensive. Other imported goods could also become considerably more costly, further pushing up an inflation which is already at its highest rate in decades.

There are also concerns that the government's plans to cut taxes and borrow billions will stoke high inflation and force the Bank of England to raise interest rates even further. This would raise monthly mortgage costs for millions of homeowners.

A fall in the pound will affect household finances as well; if the pound is worth less, the cost of importing goods from overseas goes up. For example, as oil is priced in dollars, a weak pound can make filling up your car with petrol more expensive. Gas is also priced in dollars.

Source: bbc.com

Photo source: Dreamstime.com

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