The pound fell to an all-time low against the US dollar earlier today (26 September), as markets reacted to the new government’s fiscal plan announced last Friday.
Sterling sunk to a record low of $1.03, losing 4.7% this morning following on from Friday’s 3.6% dive against the dollar, reports Reuters.
However, the director general of the Institute of Export & International Trade (IOE&IT), Marco Forgione, has said that the weakening of the pound could make British exports “more competitive”.
Rate rise expected
According to the FT, City traders are ‘pricing in’ an emergency interest rate rise from the Bank of England (BoE).
Derivatives markets are predicting a rise of 0.75% in a week’s time and an increase of more than 1.5% by the BoE’s November meeting.
Rates are expected to top 6% by May, up from the current level of 2.25%.
“The UK is now in the midst of a currency crisis,” said Vasileios Gkionakis, Citigroup’s EMEA head of foreign exchange strategy.
Speaking to GB News, Forgione said that the government had broken with the orthodoxy of the past 35 years to try and “spur growth and turbocharge the UK economy”.
He said the fall in the pound could be a “huge opportunity for businesses to exploit and trade, particularly with the US but with other nations”.
However, he has also warned that the weakening pound will make imports more expensive, impacting British manufacturing.
Forgione said that firms need support from government to make the most of the opportunities presented by international markets, and has called on the government to set up a cross-departmental MSME taskforce.
Forgione told the IOE&IT Daily Update today:
“The weakening of the pound means that UK is more attractive for investors and our exports are even more competitive. The investment in supply side changes and support government has offered UK businesses will only really work if more businesses take this opportunity to grow their export markets.
“On the flip side, the weak pound means that imports, particularly from America, will be more expensive. The government’s freeports and newly announced freezones provide a package of incentives for UK manufacturers but these will take time to have an impact.
“For the government’s strategy to work UK businesses need the help and support to grow their international trade, including by taking advantage of the free trade agreements.
“We continue to call for the government to establish a cross-departmental task force to support MSMEs, to give them the skills, to give them the knowledge and to give them the capability to trade international, because it is only by increasing exports that we are going to see a genuine turn around in the UK economy.”
Chancellor of the exchequer Kwasi Kwarteng has promised more tax cuts on top of a £45bn package he announced on Friday amid expectations borrowing will surge, reports the BBC.
If the pound stays at this low level against the dollar, imports of commodities priced in dollars – including oil and gas – will become more costly.
Other imported goods could also become considerably more expensive, further pushing up inflation which is at its highest rate for decades.