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London
CNN Business
–
The pound fell on Friday as the UK government aimed to lift the economy out of recession and boost long-term growth.
Announcing the biggest tax cut in 50 years as well as spending increases, Finance Minister Kwasi Kwarteng said the government “needs a new approach for a new era, focused on growth.”
The sweeping tax cuts, which include cutting the top rate of income tax from 45% to 40%, slashing duty paid on home purchases and scrapping a planned rise in business tax, will wipe out £45 billion ($50 billion) of relief. Government revenue over the next five years, the UK Treasury said.
Paul Johnson, director of the Institute for Fiscal Studies, An independent think tank called the government’s plans “extraordinary”.
“It’s been half a century since we’ve announced a tax cut on this scale,” he said Tweet.
The pound fell about 2.6% to $1.097 on Friday after the kwarteng announced its lowest level since 1985. British government bonds were also sold off quickly. The yield on the benchmark 10-year bond, which moves inversely to prices, is above 3.7%. It started the year below 1%.

As well as the tax cuts, Kwarteng said the government would push to subsidize energy bills for millions of homes and businesses at a cost of just £60 billion ($67 billion) for the next six months, funded by borrowing rather than taxation. Windfall profits of oil and gas companies.
The move comes a day after the Bank of England warned the country was already headed for a recession. It hiked interest rates for the seventh time since December last year to curb 10% inflation that is causing a cost-of-living crisis for millions.
News of a huge increase in government debt has already worried investors that the country is spending more than it can afford. The IFS warned in a report on Wednesday that government borrowing is on an “unsustainable path”.
George Saravelos, global head of foreign exchange research at Deutsche Bank, said in a research note on Friday that the United Kingdom’s “very large, unfunded tax cuts and other fiscal relief” are raising concerns about the country’s economy.
“The UK’s immediate challenge is not low growth,” Saravelos said. “The massive fiscal spending just announced may give some boost to growth in the short term. But the bigger question is: Who will pay for it? he added.
A senior government minister, Simon Clarke, speaking earlier on Friday dismissed suggestions that new Prime Minister Liz Truce was taking a big gamble with the British economy.
“The evidence from the 1980s and 1990s is that dynamic low-tax economies deliver the best growth rates – this is not a gamble, we have the weight of history and evidence,” he told the BBC.
Stronger energy subsidies will mean inflation should peak at 11% next month, according to the Bank of England, rather than higher this winter. But investors are concerned that additional government spending will keep inflation high. And a fall in the pound only makes matters worse by increasing the cost of imports.
The opposition Labor Party criticized the government’s plans to increase borrowing instead of raising taxes on windfall profits of energy companies.
“Oil and gas giants will be toasting the chancellor in the boardroom as we speak, while working people are left to pick up the bill – borrowing more than they can as interest rates rise,” said Rachel Reeves, the opposition’s finance spokeswoman.
Kwarteng also announced that he would end the cap on bankers’ bonuses to double their annual salary that was introduced after the global financial crisis to deter excessive risk-taking. He said he wanted to encourage global banks to invest in the United Kingdom.
Labour’s Reeves said the plan would “reward the rich” and represent a return to “trickle down”. [economics] of the past.”
– Mark Thompson, Julia Horowitz and Amy Cassidy contributed reporting.
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