Former Treasury Secretary Larry Summers said Saturday that the pound could easily slip below parity with the dollar soon.
Hyungwon Kang/Reuters
The pound could fall below $1 soon, former Treasury Secretary Larry Summers said Saturday.
Proposed tax cuts have rattled markets, sending sterling to an all-time low.
Summers criticized the UK government’s fiscal policies as “naive” and full of “wishful thinking.”
The pound could soon fall below parity with the dollar after tax cut proposals caused the UK currency to plummet to all-time lows, according to Larry Summers.
Sterling fell as low as $1.0350 Monday but pared losses to 0.44% to trade at $1.0802 at last check. The US dollar index – which measures the greenback’s strength against a basket of six other currencies, including sterling – was up 0.50% to 113.75.
“It makes me very sorry to say but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” Summers told Bloomberg TV on Friday. “There’s nothing in the pattern of market response in the UK that suggests anything but fear rather than confidence in the policy approaches being taken.”
Proposed tax cuts have sparked the pound’s sell-off. The UK’s chancellor of the exchequer Kwasi Kwarteng scrapped the top rate of income tax and lowered the base rate by 1% Friday – and then promised that there was “more to come” in an interview with the BBC Sunday.
That rattled markets, with many economists labeling Kwarteng’s plans as fiscally irresponsible. Summers also criticized the government’s tax-cutting proposals.
“It would not surprise me if the pound eventually gets below a dollar if the current policy path is maintained. This is simply not a moment for the kind of naïve, wishful thinking, supply-side economics that is being pursued in Britain,” the former Treasury Secretary said.
“Between Brexit, how far the Bank of England got behind the curve, and now these fiscal policies, Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time. I hope that at some point this policy package will be reversed or that somehow I am misjudging the situation – but I am very fearful for Britain on the path that it is traveling.”
Read more: Pound crashes to record low against the dollar as UK tax cut plans rattle investors