Yahoo Finance Spring Statement: Pound falls after Rishi Sunak's tax cut announcement
The British pound has dropped against the safe haven of the dollar after UK chancellor Rishi Sunak announced the first cut to the basic rate of income in 16 years, from 20% to 19% by 2024 in his Spring Statement.
The chancellor announced a cut to fuel duty to combat soaring prices at petrol pumps after Russia’s invasion of Ukraine sent costs even higher.
He revealed a temporary 5p per litre reduction until March 2023, the biggest rate cut on record. The move comes into effect at 6pm on Wednesday.
Read more: Pound falls after Rishi Sunak's tax cut announcement
Sterling (GBPUSD=X) fell 0.6% against the dollar to $1.3186 as the chancellor announced his Spring Statement. It was also down 0.1% against the euro (GBPEUR=X) at 83.3p.
The currency held at a three-week high earlier on Wednesday prior to the Spring Statement and as Britain's latest economy gauge showed UK inflation soared to a 30-year high in February.
It comes as new data from the Office for National Statistics revealed that UK consumer prices rose 6.2% in the year to February, ahead of forecasts of 6% and up from 5.5% the month prior. This was the highest inflation reading since March 1992, with monthly CPI increasing by 0.8% — the biggest monthly CPI surge between January and February since the financial crash.
Read more: Spring Statement Top takeaways from Rishi Sunak's speech
Rising energy bills, fuel costs and food prices were the biggest drivers of the inflation surge, while transport saw the highest rate for the second consecutive month. Meanwhile, the retail price index hit its highest level in 31 years, hitting 8.2% in February.
Sunak's new package of measure have done little to boost sentiment among investors, who are focused on surging inflation and the Bank of England's approach to interest rates following the hotter than expected figures.
The chancellor also announced a £6bn plan to lift the National Insurance threshold by £3,000. This means it will be equivalent to the income tax threshold, amounting to a tax cut for people of £330 a year.
“It is the single biggest tax cut for a decade,” he said. Some 70% of workers will have their taxes cut by more than they pay for the new levy.
He went on to cut the basic rate of income tax by 1p in the pound in 2024.
Watch: How does inflation affect interest rates?
