The pound took a cold bath on Wednesday, causing it to sink below the 1.38 benchmark against the dollar. Dampening its spirits was news that the British government is hatching a plan to hike taxes on workers, employers, and some investors to boost the health and social care system. Boris Johnson’s intentions upset some members of his party, which has for decades positioned itself as a defender of low taxes and promised not to raise such levies to fund social care in its 2019 election manifesto.
Ignoring discord in his party, Mr Johnson outlined a new health and social care levy that will cause the rate of National Insurance payroll taxes paid by both workers and employers to rise by 1.25 percentage points, with the same hike also introduced to tax on shareholder dividends.
Mr Johnson told parliament: “It would be wrong for me to say that we can pay for this recovery without taking the difficult but responsible decisions about how we finance it,” adding “It would be irresponsible to meet the costs from higher borrowing and higher debt,”
This overshadowed news earlier on Tuesday that average UK house prices increased to a record high in August, despite the end of the full stamp duty holiday which previously enticed buyers. According to lender Halifax, average UK house prices reached £262,954 last month, up 0.7% from July, and higher than the £245,602 recorded 12 months earlier. The previous high was £261,642 in May.
However, Russell Galley, managing director of Halifax, said: “August’s rise was relatively modest and the annual rate of house price inflation continued to slow.”
Dollar goes with the flow
The pound vs dollar rate was largely taking its cues from events in the UK at the start of the week, owing to a US bank holiday and a dearth of notable data from the other side of the Atlantic on Tuesday – a trend that continues into today.
In the absence of notable data, dollar investors are braced for a raft of central bank meetings across the globe, as they look for signs that countries like Canada and Australia are making progress towards policy normalisation. The possibility of a tapering delay in the US, following underwhelming jobs data on Friday, has increased the focus on policymakers elsewhere.
The Royal Institution of Chartered Surveyors Housing Price Balance for August is slated for release from the UK economy overnight.
Tomorrow sees the release of the first notable data from the US economy this week when Initial Jobless Claims for the week ended 3 September hit the headlines.