In response to the UK government’s “mini-budget” this week, the Great British Pound has crashed. The mini-budget cut income tax for all, including larger cuts for those earning over £150,000 a year, in a time when more tax is needed to fund things like the energy cap during this upcoming difficult winter. To fund all these new initiatives, including no stamp duty for first-time buyers (up to £425,000), the government will have to borrow a huge amount of money, increasing their debt. The investors all around the world did the quick math and pulled out from investing in the Pound, ultimately leading it to decline.
But things get worse. Because of the rising interest rates, the bond market (bonds are basically fixed rate lending that can be traded) has also crashed. In case you didn’t know, the majority of your pensions are kept in bonds. The Bank of England had to therefore step in and start buying lots of ponds, meaning that they are effectively printing more money, the single biggest reason to why we got into this recession in the first place!
I made a short video which summarises the fall of the pound, so be sure to check it out for an easily digestible watch time.
Anyway, next week is another week and another newsletter, keep posted for more snippets.
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