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Sterling tumbles as UK govt projects big public debt, tax rise
Chancellor Alistair Darling says competitive fx rate is helping exporters
The Pound hits a 3-week low of $1.4440 = GBP1.00
Sterling tumbled to a three-week low against the dollar on Wednesday after the UK government projected a massive increase in public debt and said it would increase taxes as it unveiled its budget.
The pound was also weighed down as British finance minister Alistair Darling said a competitive exchange rate would help exporters.
The UK currency came under pressure as concerns mounted over Britain’s ability to service its debt as it tackles the worst economic downturn in more than 60 years.
Growth projections were largely in line with expectations
“The currency would have been affected by the overall projections, not just growth, but the public deficit ones as well, which are quite staggering in terms of the scale of the borrowing,” said Geraldine Concagh, economist with AIB Group in Dublin. ”I think it creates something of a negative backdrop for sterling relative to what we’ve seen over the last week or two.”
Darling said net public sector debt including bank interventions would increase from 59 percent of gross domestic product this year to 68 percent next year.
“The debt-to-GBP ratio is on the high side,” said Geoffrey Yu, currency strategist at UBS in London, adding that this was putting selling pressure on sterling.
A new income tax rate of 50 pct from April on higher earners was also slamming the currency, he said.
“These taxes are a worrying sign. People will wonder if the UK is a viable destination, given high tax rates.”
Sterling fell to $1.4440 against the pound its lowest since early April. By 1238 GMT, it was down 1.3 percent on the day at $1.4477.
The euro was up 1.5 percent 89.66 pence <EURGBP=>, on track for its biggest rise in a month.
Britain will issue 220 billion pounds ($320.5 billion) of government bonds in the 2009/10 fiscal year, the Debt Management Office said, well above the 147.9 billion it estimated last month and higher than market forecasts of 180 billion pounds.
