'They've lost control' | Gov 'gambling with economy', Asda chairman warns

Gov 'gambling with economy', Asda chairman warns

Since the announcement of the mini-budget by Kwarteng, it would be an understatement to say this week has been nothing but fluctuations and filled with responses from businesses. Also, the pound hitting a record low against the dollar hasn’t helped this week to ease into a better light.

For a while, the terms ‘economy’, ‘pound’, ‘mini-budget’ and ‘living cost’ has been filling the agenda for businesses all over the UK. To add to these terms, many economists and businesses have raised concerns over the turbulence that the overall UK economy is currently facing.

In fact, Sir Stuart Rose, Chairman of Asda and former Chief Executive of Marks and Spencer, has reported that the government is gambling with the UK’s economic future. Also, he likened the government’s mini-budget to a bet on a horse race.

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However, Sir Stuart Rose isn’t the only industry-leading figure that shares the same concerns about the UK economy. Sir Keir Starmer, Leader of the Labour Party of the UK, says: “The government has lost control of the British economy." This statement reveals the worry and general theme that has been overwhelmed by businesses across the UK too.

Research by the S&P Investment Grade Corporate Bond index displays that last year in October, UK businesses that are considered to have strong finances- deemed investment grade- could borrow for 10 years at 1.76%. On the other hand, that same debt is now costing 6.1%. These numbers and interest rates ultimately have and will continue to impact various different business models, such as corporate level, famous brands and so many more.

What’s happening with the UK Pound Sterling and how will it affect businesses?

As of the afternoon of Monday 26 September, the pound has hit a rate of 1.0799 against the US dollar, which is a record low.

Senior FX Strategist of Rabobank, Jane Foley states: “The cause is investors selling the pound because they have doubts about the government’s plans.” She expresses her predictions by adding: “They’re worried that some of these tax cuts that have been announced aren’t going to be fully funded.”

Glenn Barklie, Chief Economist at Investment Monitor suggests: “Economically, a weakening British pound makes it more expensive for UK companies to import goods and services from abroad.” He adds: “The pound has fallen to a record low against the US dollar. And the new Conservative government are taking a big gamble with the UK economy.”

Despite all of the statements put forth by different industry experts and leaders, there is a similar pattern that prevails in terms of how the pound started to tumble.

The Bank of England has issued a statement on Twitter: “The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term.” This statement has created new predictions by businesses and further sparked businesses to renew their deals and investors to look into new prospects.

In addition, economists have set forth that the Bank of England will raise the interest rate from the current 2.25% to 5.8% by next spring. However, this foreseeing has led to some lenders removing mortgage deals and business deals from the table.

What should businesses do next?

Although there are many predictions and changes happening and yet to happen there are a few suggestions that experts are pushing forward.

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A suggestion is provided by Barrett Kupelian, Senior Economist of PwC UK: “To achieve higher levels of sustainable economic growth rates requires a broad set of tools and policies. Crucially, it requires addressing the root cause of low productivity in the UK.”

In terms of savings, if the Bank of England increases interest rates, holding savings or investments in pounds generally becomes more beneficial and attractive which can lead to boosting the demand rates for the pound. Also, opening room for investment can enhance the demand for the pound and ultimately lead to an increase in the value of the pound.

Overall, what businesses will expect and face will be projected in the near future with new statements to come from Kwarteng and the current government.

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