Pound falls to record low amid chatter about emergency action by the Bank of England
“Confidence in the UK has been sideswiped amid a pile-on of worries about the economic outlook and the direction of travel being taken by the Truss administration,” said Susannah Streeter, senior analyst at Hargreaves Lansdown. “Only a U-turn in the slash-and-spend policies is likely to significantly restore optimism, but the administration is digging in its heels.”Article content
The FTSE 350 Index — which comprises stocks in the export-heavy FTSE 100 and the domestically focused FTSE 250 — has now lost more than US$300 billion in market capitalization since Sept. 5, when Truss was confirmed leader of the Conservative Party. In that time, a U.K. government bond index has lost over £160 billion in market value, according to data compiled by Bloomberg.
“What the U.K. government has done is said, ‘to hell with the inflation outlook, let’s just think about growth’,” said Seema Shah, chief strategist at Principal Global Investors. “Bond yields are only going to go higher and undo a lot of that positive economic movement from the tax cuts,” she said in an interview.Article content
Sterling-denominated, investment-grade bonds have also lost US$29 billion over the same time, dragging down the market value of a Bloomberg index that tracks the securities to the lowest level since March 2016. A gauge of sterling-denominated junk bonds — of which British companies account for more than 90 per cent — has seen its market value drop by US$1.4 billion.
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