Tuesday, the International Monetary Fund (IMF) said that the UK government's plans to cut taxes will likely "increase inequality in Britain" and could hurt the country's monetary policy.
On Friday, Chancellor Kwasi Kwarteng announced the UK's biggest tax cut in 50 years, worth £45 billion. This made people worry that government borrowing and interest rates could go up together.
The IMF said in a statement, "Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture. It is important that fiscal policy does not work at cross purposes to monetary policy"
After the IMF voiced its concerns, the value of the pound dropped by 0.7% to $1.06 on Wednesday. On Monday, it hit a record low of $1.03.
The government said that the steps would lead to growth in the economy.
But recent steps may not be enough to impress global investors. Charles Stanley's chief investment commentator, Garry White, said, "Investors believe that tax cuts and increased public spending could make the UK's economic situation even worse – and see this gamble as risky. Just putting money into the economy does not result in sustainable long-term growth."
In the midst of economic trouble, the Bank of England (BoE) announced on Wednesday that it plans to buy short-term, targeted bonds on the gilt market to keep the financial system stable.
Stuart Clark, who is in charge of portfolios at Quilter, said: "We have just seen the Bank of England (BoE) intervene in the gilt market today to try and calm the situation, and this should provide some reassurance to the market. However, the BoE is trying to slow down all the plates spinning in the air without letting any fall and the Treasury, during the "mini-budget" on Friday, threw a bunch of marbles onto the floor to make it more challenging."
By fLEXI tEAM