Sterling plummets to fresh 37-year low as UK unveils mini-budget

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Sterling Plummets To Fresh 37-Year Low As Uk Unveils Mini-Budget Sterling Plummets To Fresh 37-Year Low As Uk Unveils Mini-Budget
Sterling slid to its lowest against the dollar since 1985 on Friday morning. Photo: PA
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By Henry Saker-Clark, PA Deputy Business Editor

The pound sank to a fresh 37-year low against the dollar as the new British finance unveiled tens of billions of pounds of tax cuts and spending.

Equity markets were also particularly downbeat, with the FTSE 100 plunging to its lowest in two months.

Sterling declined by as much as 0.89 per cent to $1.115 as Kwasi Kwarteng spoke to the UK parliament at 9.30am on Friday.

It has since stabilised at around $1.119, but this remains below the previous 37-year low struck earlier this week after concerns over surging interest rates hit the currency.

It comes after the Bank of England launched another 0.5 percentage point interest rate hike to 2.25 per cent on Thursday and warned the UK could already be in a recession.

Kwasi Kwarteng ahead of delivering his mini-budget. Photo: Aaron Chown/PA

The UK central bank previously projected the economy would grow in the current financial quarter but said it now believes Gross Domestic Product (GDP) will fall by 0.1 per cent, meaning the economy would have seen two consecutive quarters of decline – the technical definition of a recession.

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Economists had warned that Mr Kwarteng’s tax-cutting ambitions could put further pressure on the pound, which has also been impacted by strength in the US dollar.

Former Bank of England policymaker Martin Weale cautioned that the new Government’s economic plans will “end in tears” – with a run on the pound in an event similar to what was recorded in 1976.

Economists at ING also warned on Friday that the pound could fall further to $1.10 amid difficulties in the gilt market.

Chris Turner, global head of markets at ING, said: “Typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be confidently funded.

“Here is the rub – investors have doubts about the UK’s ability to fund this package, hence the gilt underperformance.

“With the Bank of England committed to reducing its gilt portfolio, the prospect of indigestion in the gilt market is a real one and one which should keep sterling vulnerable.”

Meanwhile, concerns over higher interest rates and pressure on consumer spending continued to weigh on the stock market.

The FTSE 100 fell by 1.48 per cent to 7,054.64 points in early trading – its lowest since mid-July.

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