The British Pound feels familiar pain of Brexit as Covid-19 takes its toll on London's finances. Despite the fact that the Bank of England is the central bank and the main lender of the currency, the UK government's stance of leaving the European Union is the most important financial change that the country has had to undergo since it gained independence in 1866.
In the currency market, investors are concerned that the Bank of England will not be able to withstand the political turmoil and may resort to printing money to keep the economy afloat. This is a risky proposition. If the pound is devalued too significantly, it will be difficult for the UK economy to continue to grow and create jobs.
The uncertainty and fear about the future position of the pound has caused a sharp rise in the value of the euro and the dollar. The UK's exports have been hit by this sudden devaluation of the currency. Foreign companies in London have been forced to adjust to higher costs of doing business in the country. British exporters are feeling the pinch.
The Bank of England's decision to hold interest rates at record lows has not helped to reassure the markets, as investors have yet to see any economic data supporting its decision. The recent release of figures from the Office for National Statistics showed that in the six months to the end of March, growth in real wages fell by one percent, and inflation increased by one percentage point. For those who follow the news closely, this means that inflation is likely to remain at its current rate of two percent or higher for at least a year.
This has caused a lot of worry about the future of the British pound. It seems that the government and the Bank of England have been caught out in a trap of political rhetoric and economic uncertainty. It is easy to understand why so many people are apprehensive about the future of the UK pound, when so much political and economic uncertainty surrounds the upcoming negotiations with the EU. The fact that the British people have to leave the EU means that their future will be put under the microscope for at least one year.
It is likely that the government is trying to limit the negative consequences of the economic uncertainty by announcing that it will not increase taxes and cut spending before the end of the year. This is a politically savvy move on its own, but there is one other aspect to this decision that many people should take into account. One of the reasons why the government has made the decision to reduce spending is because it hopes that more spending cuts will prevent the economy from falling further. into recession.
There is a possibility that the UK could fall back into recession as a result of all the money being spent on public service redundancies. Many jobs in the public sector are due to be lost after the UK leaves the EU. The number of unemployed is predicted to rise, and this is one of the reasons why many experts predict that the economy could begin to contract in the coming months.
When the pound starts to drop and the prices of living rise, the government will have to come up with more borrowing in order to meet the rising cost of living. If this happens, the economy will face the spectre of higher interest payments as well as having to borrow more money to pay for the same goods and services that it was paying before.