Sterling lifted on Tuesday as media reports offered new details on how incoming Prime Minister Liz Truss is planning to tackle Britain’s growing energy crisis.
Household bills are due to jump by 80% in October, but a source familiar with the situation has told Reuters that Truss is looking at freezing bills this winter, in a plan that could cost more than the COVID-19 furlough scheme.
After winning a leadership race to take over from Boris Johnson, Truss must now tackle an economy heading for recession, soaring prices on fuel and consumer goods, and a currency that is among the world’s worst performing this year.
Although the pound rallied slightly on Tuesday as more concrete details of her potential policy actions emerged, sterling is still wallowing around two-and-a-half-year lows amid concerns about how Britain will pay for this support.
Britain’s public finances remain weighed down by the government’s huge coronavirus spending spree. Public debt as a share of economic output is not far off 100%, up from about 80% before the pandemic.
The pound has slid 15% against the dollar as inflation surged to double digits and growth grinds to a halt.
Truss’s hints at tax cuts while campaigning for the leadership hit British government bonds in August with their biggest monthly price decline for decades, as investors fear a balance of payments crisis.
By 0811 GMT, the pound was up 0.38% at $1.1567, having slumped as low as $1.444 on Monday after news Russia would keep shut one of its main gas supplies to Europe.
A fall in sterling below $1.1413 would take it to its lowest level since 1985, according to Refinitiv data.