On Monday, the British pound, which typically averages $1.50 against the dollar, crashed to $1.03, a record low. Despite a modest recovery to $1.07, the pound’s crash has significant consequences.
This crash came about after the British government’s proposed tax cuts, the largest in 50 years, intended to promote growth in the economy. However, with inflation already almost at 10% (opens in new tab), investors feared the government borrowing associated with these cuts could make it rise even more.
The aftermath of this crash means those in the UK are having to face increasing prices that will stretch budgets even thinner. For example, since the beginning of the year, the decreasing value of the pound means the average driver in Britain is spending 5 pounds more to fill up their vehicle (opens in new tab), and prices could continue to rise. While the government’s decision was meant to generate wealth, this rise in inflation could result in increased interest rates, potentially reaching a whopping 6%.
This plummet in the value of the pound will have effects for Americans as well.
Pound crash impact on U.S.
The United States’ Federal Reserve’s actions to reduce inflation by raising interest rates (opens in new tab) have significantly increased the value of the U.S dollar. Currently, the U.S. dollar is the strongest it’s been in 20 years, as the U.S. economy is performing better than other countries at the moment. As the U.S dollar strengthens and the pound falls drastically, the two currencies are closer in value than ever before.
Despite its impact on the UK, the pound’s crash will not be felt as strongly on the American economy as a whole. However, it will have consequences for individuals, both positive and negative. Businesses who sell abroad, as a result of these shifting exchange rates, are experiencing losses, as higher prices abroad decrease sales.
On a more positive note, those looking to travel abroad to the UK will have more purchasing power, enabling them to save on upcoming visits. So, if you’ve been planning a vacation, now’s a good time. Considering the way the pound stands now, $100 USD equals 92.82 pounds.
Basically, purchases will be less expensive for American travelers in the UK, an upside during this time of high inflation (opens in new tab). This also applies to importers, as their overseas purchases will now be less expensive as well. On the other hand, American exports will become more costly to those in the UK, as will travel to the U.S.
Resulting from the British government’s proposal to cut taxes and the subsequent fear of inflation by investors, the pound has reached a record low and is slowly recovering.
So, if you’re an international traveler or business dealer, now’s a good time to keep an eye on foreign currencies. You’ll be able to save money when importing from or traveling to Britain, but business owners could potentially lose sales as American goods become more expensive abroad.