Thu. Mar 23rd, 2023

The pound has plummeted to its lowest level against the dollar in history, falling more than 4 per cent, as the markets responded to the announcement of Britain’s biggest tax cuts in 50 years.

Sterling tumbled to $1.035 on Monday in early Asia trading before it regained some ground to about $1.05, still a 20-year low.

The collapse of the pound comes after chancellor Kwasi Kwarteng hinted that more tax breaks could come after his mini-Budget on Friday announced huge tax cuts and massive borrowing

Mr Kwarteng on Sunday attempted to assuage people’s fears that the mini-Budget mainly helps the rich, saying the cuts “favour people right across the income scale”.

He and Liz Truss have rejected analysis indicating that 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.

The pound was buying less than a euro or dollar at one international bureaux de change this morning. The Change Group office at London St Pancras International was selling €100 for £108.84 – valuing the pound at less than 92 euro cents.

Labour’s Rachel Reeves said on Monday she was “extremely worried” about the latest slump in the pound, warning that it would put pressure on the Bank of England to raise interest rates.

It comes as one of the chancellor’s allies told The Times the drop in the pound’s worth was merely “City boys playing fast and loose with the economy … it was bound to happen. It will settle”.

Ms Reeves told Times Radio: “Instead of blaming everybody else … instead of behaving like two gamblers in a casino chasing a losing run, they should be mindful of the reaction not just on the financial markets but also of the public.”

Chloe Smith, the work and pensions secretary, told Sky News: “I wouldn’t be able to comment on market movements … lots of factors go into market movements.”

In an interview with CNN, Ms Truss rejected comparisons with Joe Biden’s approach, after the US president said he was “sick and tired of trickle-down economics”.

Asked whether she was “recklessly running up the deficit”. Ms Truss said: “I don’t really accept the premise of the question at all.”

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 government 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 £45bn tax-slashing package was met with alarm by leading economists, some Tory MPs and financial markets, fuelling predictions sterling could plunge to parity with the US dollar by the end of the year.

Such a slump could trigger a rebellion from Tory backbenchers, who could refuse to vote for the government’s finance bill or submit letters of no confidence, The Telegraph reported, citing backers and critics of the PM.

In a sign of Tory unease, Conservative former chancellor George Osborne urged the government to end the “schizophrenic” policy of slashing taxes and increasing borrowing.

Ms Osborne told Channel 4: “Fundamentally, the schizophrenia has to be resolved – you can’t have small-state taxes and big-state spending.”

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”.

Labour leader Sir Keir Starmer, who pledged that a Labour government would reinstate the top income tax rate of 45 per cent, hit out at the government’s “wrongheaded” economic policies.

Liberal Democrat Treasury spokesperson Sarah Olney said: “This government has shown its true colours, making regular people pay in the long run for their economic vandalism”.

The sluggish performance of the pound has added to the concerns of investors amid a bleak market outlook and the risk of recession, as winter approaches and the war continues in Ukraine.

The price of imports of commodities valued in dollars, such as oil and gas, are set to soar if the pound continues to remain at such a low level against the US currency.

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