Larry Summers warns pound may tumble below $US1 on ‘naive’ UK policies

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Larry Summers warns pound may tumble below $US1 on ‘naive’ UK policies
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The UK is behaving ‘a bit like an emerging market turning itself into a submerging market’, the former US Treasury Secretary said.

Former Treasury Secretary Lawrence Summers blasted the economic policies being adopted by newly installed UK Prime Minister Liz Truss, saying they’re creating the circumstances for the pound to sink past parity with the US dollar.

Truss’s government has set out the most radical package of tax cuts for the UK since 1972, reducing levies both on worker pay and companies in an effort to boost the long-term potential of the economy. Economists are concerned the package is unaffordable and will trigger a currency crisis over concerns about rising debt.Advertisement

The former Treasury chief also flagged dangers with a surging US dollar, which is adding to inflationary pressures for countries around the world and increasing pressure on overseas borrowers that have issued debt in the US currency. He also indicated that dollar appreciation -- fuelled by the Federal Reserve’s shift to a more aggressive path of interest-rate hikes -- may continue.“This is going to be an issue that is going to be with us for some time,” Summers said.

“When you’re intervening against the trend, when you’re intervening against the direction of monetary policy -- which is certainly the case in Japan -- your intervention is as likely to create opportunities for speculators as it is to really be effective in changing the path of currencies,” he said.Summers suggested that tighter US fiscal policy could be a help, by reducing the burden currently placed on the Fed to fight domestic inflation.

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