Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Pound extends day's losses after UK announces tax hikes

EconomySep 07, 2021 16:25
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger/File Photo

By Ritvik Carvalho

LONDON (Reuters) - The pound dipped for a second consecutive day against a broadly stronger dollar on Tuesday and hit its lowest in more than six weeks against the euro, with most of the losses coming after the British government set out a plan to raise taxes.

Prime Minister Boris Johnson unveiled plans to raise taxes on workers, employers and some investors to try to fix the health and social care system, angering some in his governing party by breaking an election promise.

Johnson outlined what he described as a new health and social care levy, which will see the rate of National Insurance payroll taxes paid by workers and employers rise by 1.25 percentage points. The same increase will be applied to the tax on shareholder dividends.

Sterling, already trading lower on the day, dropped as much as 0.5% against the dollar to $1.3768. By 1452 GMT, it traded down 0.4% at $1.3782.

It fell to its lowest against the euro since July 21, down 0.2% at 86.14 pence, and last traded 0.1% lower at 85.94 pence.

"We are seeing the narrative of the (economic) recovery process being tested by a tax hike which potentially could take liquidity or money out of the system, so that newsflow isn't particularly helpful," said Jeremy Stretch, head of G10 FX strategy at CIBC World Markets.

Hawkish comments from BoE policymaker Michael Saunders did not have a sizeable impact on the pound. Saunders said the central bank may need to raise interest rates next year if growth continues and inflation becomes stickier.

"I would assume that the market sees Saunders as an outlier on the MPC (Monetary Policy Committee), thus feels no need to reprice hawkishly based on what he's said," said Michael Brown, senior market analyst at Caxton FX.

Bets that Britain's rapid pace of COVID-19 vaccinations would lead to a faster economic reopening and rebound had earlier propelled sterling to one of the best performing G10 currencies this year.

But recent surveys have hardened indications of slowing economic growth. They also reveal that economic momentum is stuttering under the impact of Brexit, global supply chain issues and COVID-19 isolation rules.

"The pound's outlook could remain relatively bleak also as the growth-negative impact of the lingering post-Brexit uncertainty and the pandemic starts to manifest itself, while the government support for the labour market is due to expire at the end of this month," said Valentin Marinov, head of G10 FX research at Credit Agricole (PA:CAGR).

"In particular, supply-chain and labour market disruptions could fuel further increases in cost-push inflation while hurting the economic recovery."

On Monday, sterling dipped on the back of a survey of purchasing managers that showed the British construction industry grew last month at its weakest pace since the lockdown of early 2021, hit by a severe shortage of building supplies.

Friday PMI data had showed growth in the services sector slowed in August compared with July.

Pound extends day's losses after UK announces tax hikes

Related Articles

Bitcoin tumbles 5.5% to $53,436
Bitcoin tumbles 5.5% to $53,436 By Reuters - Dec 03, 2021

(Reuters) - Bitcoin plunged 5.5% to $53,435.9 at 22:04 GMT on Friday, losing $3,112.06 from its previous close. Bitcoin, the world's biggest and best-known cryptocurrency, is...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email