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Pound crashes to all-time low against dollar as Kwarteng signals more tax cuts

The pound dropped to its lowest point since 1985. Photo: Matt Cardy/Getty
The pound dropped to its lowest point since 1985. Photo: Matt Cardy/Getty

The pound (GBPUSD=X) has plunged to an all-time low against the dollar after chancellor Kwasi Kwarteng vowed to press on with more tax cuts following Friday’s min-budget.

New chancellor Kwasi Kwarteng rattled investors on Sunday after saying that there was "more to come" and insisted that last week's announcement of £45bn ($48bn) in tax cuts was just the start.

Read more: Mini-budget: Kwarteng cuts income tax and stamp duty in growth push for UK economy

Sterling tumbled almost 5% to as low as $1.0327 in overnight trading following the comments, taking it below its 1985 low and to the weakest since decimalisation in 1971.

It made up some ground to about $1.070, but the sharp drop has stoked fears that the currency could slump to parity by the end of the year.

The moves means the pound has slumped by almost 10% so far this month alone.

The sharp decline has also sparked calls for aggressive interest rate hikes from the Bank of England at its next meeting in November, with some analysts urging emergency action as soon as this week.

The chancellor has brushed off questions about the markets' reaction to his "fiscal event", which outlined the biggest programme of tax cuts since 1972, after it was announced on Friday.

The measures, which include cutting stamp duty, scrapping the additional rate of income tax and reversing the rise in National Insurance Contributions, are aimed at fuelling economic growth.

Watch: How will the plunge of the pound affect the cost of living crisis?

Read more: Mini-budget: 'Trussonomics' baffles investors as bonds and pound tank

It’s adding to a volatile mix of concerns in global financial markets amid fears that prime minister Liz Truss's policies are pushing up public borrowing to unsustainable levels as the country grapples with a cost of living crisis.

Read more: FTSE 100 holds up as tanking pound deepens economic worries

Economist have warned the currency could fall below parity with the dollar if Bank of England governor Andrew Bailey fails to intervene to shore up the pound.

Traders are now betting that Threadneedle Street will step in with an emergency interest rate rise to help support the currency.

But Samuel Tombs at Pantheon Macroeconomics warned sterling will weaken further if Bailey fails to act, adding: "I expect he’ll dither".

Viraj Patel, an FX analyst, said: "My sense is the markets want Bank of England action in the next few days… If we don’t get that then I fear for how low the pound can go (cable at parity is not a floor.)"