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The British pound plunged to a record low against the US dollar after the UK government announced the biggest tax cut program in 50 years.
Sterling fell more than 4% in early Asian trading to just $1.03 before recovering to about $1.07 early Monday.
Experts warn that if the pound plunges toward parity with the dollar, prices could rise further, exacerbating the cost of living crisis.
The new government of Prime Minister Liz Truss announced on September 23 the biggest package of tax cuts in half a century aimed at spurring growth in the UK economy.
But opposition parties have accused the government of recklessly betting on Britain’s finances.
market jitter
Having raised over £70bn ($75bn) of borrowing, Prime Minister Kwasi Kwarten scrapped a planned corporate tax hike, abolished the top rate of income tax on top earners and planned a basic rate of income tax. We have moved forward the reduction of the Reduction of stamp duty for homebuyers.
The Prime Minister’s announcement came a day after the Bank of England raised borrowing costs by another 0.5%, but gave no details on how to reduce the UK’s debt as a percentage of GDP. The term financial plan is “in due course”.
Business leaders welcomed Kwarten’s so-called mini-budget, but those who criticized the government for pushing public debt to unsustainable levels saw it as a big gamble.
After the announcement, investors sold off as much short-term British government bonds as possible, sending the pound plummeting.
Kwarteng further surprised the market on Sunday by saying “more are coming” on tax cuts.
“Incredible”
Labour’s shadow prime minister, Rachel Reeves, said she was “incredibly concerned” about the pound’s depreciation.
She told the BBC on Monday that last night’s drop was due to Kwarten’s proposal for “underfunded tax cuts”, which she said had “fueled the flames”.
Speaking to Times Radio, Reeves likened Truss and Quarteng to “two gamblers chasing losses in a casino”, adding that their actions were “reckless” and “irresponsible”.
Downing Street declined to comment on the pound’s dramatic decline.
An official spokesman for the prime minister said on Monday: It is due to our growth plan and commitment to being financially responsible and reducing our debt over the medium term.
“As you know, our growth plan includes fundamental supply-side reforms to deliver higher and more sustainable growth over the long term, and that is our focus.”
PA Media contributed to this report.
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