Sterling fell by more than four percent to just 1.0327 dollars in early Asia trade before it regained some ground to about 1.05 dollars early on Monday, when the euro also hit a fresh 20-year low amid recession and energy security fears.
Chancellor Kwasi Kwarteng has previously brushed off questions about the markets’ reaction to his mini-budget – which outlined the biggest programme of tax cuts for 50 years.
He and Prime Minister Liz Truss have defended the package, despite analysis suggesting the measures, which include abolishing the top rate of income tax for the highest earners, will see only the incomes of the wealthiest households grow while most people will be worse off.
Ms Truss said her Government was “incentivising businesses to invest and we’re also helping ordinary people with their taxes”.
Chancellor Kwasi Kwarteng with Prime Minister Liz Truss
Dylan Martinez
The pound has slumped vs the dollar over the last four months
PA Graphics/Press Association Images
In an interview with CNN, she rejected comparisons with Joe Biden’s approach, after the US President said he was “sick and tired of trickle-down economics”.
The Prime Minister told the US broadcaster: “We all need to decide what the tax rates are in our own country, but my view is we absolutely need to be incentivising growth at what is a very, very difficult time for the global economy.”
Asked whether she was “recklessly running up the deficit,” Ms Truss said: “I don’t really accept the premise of the question at all.”
Three days after his fiscal statement, the Chancellor indicated his announcements were just the beginning of the Government’s agenda designed to revive the UK’s stagnant economy.
He said: “We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people that are going to drive this economy.”
Mr Kwarteng and Ms Truss could continue their spree in the New Year with possible further reductions in income tax and the loosening of immigration rules and other regulations.
The Chancellor, who has launched a review of all tax rates ahead of a formal Budget, is reportedly considering abolishing a charge for parents who earn more than £50,000 and claim child benefit, increasing the annual allowances on pension pots and a tax break for people who stay at home to care for children or loved ones.
The £45billion tax-slashing package was met with alarm by leading economists, some Tory MPs and financial markets – with the pound tumbling to fresh 37-year lows.
The slide continued as trading opened in Asia and Australia on Monday, fuelling predictions sterling could plunge to parity with the US dollar by the end of the year.
In a sign of Tory unease, former deputy prime minister Damian Green told GB News “there’s more to conservatism than tax cutting”, and said with a general election in two years things “have to happen quickly”.
Opposition parties said the Government’s plans were an admission of 12 years of Tory economic failure.
Labour leader Sir Keir Starmer hit out at the Government’s “wrongheaded” economic policies as he pledged to reverse the income tax cut for people earning more than £150,000.
Liberal Democrat Treasury spokesperson Sarah Olney said: “Kwasi Kwarteng and this Conservative Government are staggeringly out of touch. He showed in his budget that banks and billionaires come first, while families and pensioners come last.
“This Government has shown its true colours, making regular people pay in the long run for their economic vandalism."