What a Historically Low British Pound Means for Investors
The British pound sank after the U.K. government unveiled its largest set of tax cuts in decades. Here's what that means for U.S. investors.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter

The British pound recently fell to its lowest value ever relative to the U.S. dollar. So if you're thinking of traveling to the United Kingdom for a fall visit, you couldn't have asked for better timing from a currency exchange perspective. Your money will go farther across the pond than it ever has.
There are several reasons why the pound has depreciated to such an extent. However, the biggest reason it has fallen in value is the mini-budget introduced on Sept. 23 by the cabinet of newly appointed British Prime Minister Liz Truss.
The Conservative government introduced the most extensive tax cuts in Britain since 1988, when Margaret Thatcher was the prime minister. Cuts include eliminating the top tax rate of 45% – people earning more than $161,327 will now pay the current 40% rate – a year before the government intended for it to disappear.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The tax cuts are projected to cost the U.K. Treasury $48 billion in revenue over the next five years. Estimates suggest that approximately half of the tax savings will go to the country's wealthiest 5% of households.
Huw Pill, chief economist of the Bank of England, believes the tax cuts will accelerate inflation in the U.K. As a result, interest rates will likely have to go much higher than initially projected.
"In my view, a combination of the fiscal announcements we have seen will act as a stimulus to demand in the economy," Pill said, as reported by The Guardian (opens in new tab). "It is hard not to draw the conclusion that this will require a significant monetary policy response."
Moreover, a weak British pound means imported products will be more costly, adding to the inflationary pressures already facing the country.
As for U.S. investors, the faltering pound will be good for importers of British goods, such as grocery stores, car dealerships, apparel, etc. However, businesses that generate big sales in the U.K., such as automaker Ford Motor (F (opens in new tab)), beverage giant Coca-Cola (KO (opens in new tab)) and financial services firm Marsh & McLennan (MMC (opens in new tab)), will face greater headwinds trying to grow revenues and profits there.
Morgan Stanley equity strategist Michael Wilson estimates that a 1% increase in the U.S. dollar versus a basket of global currencies results in a 0.5% decline in earnings for the average S&P 500 company.
"The recent move in the U.S. dollar creates an untenable situation for risk assets (like stocks) that historically has ended in a financial or economic crisis, or both," Wilson says. "While hard to predict such 'events,' the conditions are in place for one, which would help accelerate the end to this bear market."
The British pound has since stabilized after the Bank of England overnight announced an emergency bond-buying program "to restore orderly market conditions." Still, the message to U.S. investors trying to find ways to benefit from the weak currency is clear.
The average retail investor should continue to focus on buying quality U.S. stocks with significant domestic revenues and solid overseas businesses. The current market volatility isn't a time to be trying to thread the needle.
Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he's a keen student of business history. Married and now living in Halifax, Nova Scotia, he's also got an interest in equity and debt crowdfunding.
-
-
How to Protect Your Cash and Investments in a Banking Crisis
A focus on FDIC insurance and Treasury-only money market or bond fund options can help safeguard investments when a banking crisis threatens.
By Peter Newman, CFA • Published
-
Maximize Charitable Giving Tax Savings and Give All Year
Thinking of December as ‘contribution season,’ paired with using tax-savvy giving tools, can help you spread the generosity all year long.
By Mark Froehlich, CPA, MBA • Published
-
Stock Market Today: Stock Market Struggles While Alibaba Shines
Tech and communication services stocks were two of the worst performers today as Treasury yields rose.
By Karee Venema • Published
-
Stock Market Today: Stocks Finish Mostly Higher After First Citizens Buys SVB Assets
The Nasdaq closed lower, though, as mega-cap tech stocks declined.
By Karee Venema • Published
-
Stock Market Today: Stocks Brush Off Deutsche Bank Troubles
Troubling financial sector headlines kept stocks lower for most of the day, but the major indexes pushed higher by the close.
By Karee Venema • Published
-
Best Defensive Stocks to Buy Now
Investors are concerned about the financial sector and the economy, but these best defensive stocks have risk-averse traits that can help calm those fears.
By Mark R. Hake, CFA • Published
-
Stock Market Today: Stocks Close Higher in Volatile Session
The major indexes spent most of Thursday in rally mode, but selling pressure emerged in afternoon trading.
By Karee Venema • Published
-
Stock Market Today: Stocks Sink After Latest Fed Rate Hike
The major indexes sold off sharply Wednesday even amid signs the Fed's rate-hike campaign could be nearing an end.
By Karee Venema • Published
-
Stock Market Today: Markets Up Again as Bank, Energy Stocks Outperform
The major indexes closed higher for a second straight day ahead of tomorrow's highly anticipated Fed decision.
By Karee Venema • Published
-
Stock Market Today: Stocks Rise Ahead of Fed
Bank headlines dominated another choppy day of trading on Wall Street.
By Karee Venema • Published