Pound hits all-time low in backlash at Kwasi Kwarteng’s tax cuts

Nicholas Cecil,Simon English and David Bond
·3 min read
Pound hits all-time low in backlash at Kwasi Kwarteng’s tax cuts

The pound nosedived to a record low against the dollar early on Monday in a frenzied backlash against Kwasi Kwarteng’s tax-cutting bonanza.

Markets took fright after the Chancellor signalled at the weekend that he was ready to slash taxes even more than the £45 billion cuts in his mini-budget.

Sterling crashed to its lowest level against the dollar since decimalisation in 1971, down by more than four per cent to just $1.03 in early trading in Asia before regaining ground to about $1.07 when markets opened in the UK.

After Mr Kwarteng’s high-octane gamble, piling an extra £72 billion of debt on Britain to fund his tax cuts and energy bills support package, speculation was growing that the Bank of England’s Monetary Policy Committee might have to intervene with an emergency interest rate hike to prop up the pound.

Labour called for the City’s regulator to investigate whether possible mini-budget leaks, including seemingly of the cut to the 45p top rate of tax, allowed hedge fund managers to make huge profits by shorting the pound.

Government sources suggested Mr Kwarteng was remaining calm, with the view that markets regularly move up and down. Asked on ITV’s Good Morning Britain how much extra he was intending to borrow, his Cabinet colleague Chloe Smith said: “We will see for a little while, I’m sure some volatility.”

She added: “What we are really focused on doing is securing growth.”

But Mel Stride, Tory chair of the Commons Treasury Committee, criticised Mr Kwarteng’s weekend comments.

He tweeted: “It would be wise to take stock of how through time the markets weigh up recent economic announcements rather than immediately signalling more of the same in the near term.”

After the pound plunged, the gilt rate for the Government to borrow over 10 years rose above four per cent, potentially blowing a multi-billion pound hole in the public finances for an economy which the Bank of England says may already be in recession.

Capital Economics suggested one option for the Bank would be to immediately hike interest rates by between one percentage point and 1.5, with some markets already reportedly pricing in a 0.75 rise within a week.

An interest rate hike would pile more economic pain for millions of families, hitting them with higher mortgage payments. A weaker pound also fuels the cost of imports, deepening the cost-of-living crisis.

The Liberal Democrats called for Parliament to be recalled to debate the crisis, with mutterings among some Tory MPs that new Prime Minister Liz Truss could face unrest among her backbenchers if the Pound reaches parity with the Dollar.

Some Tory MPs believe Mr Kwarteng’s cuts, which analyses say will benefit the wealthy most, will lead to them haemorrhaging support in the so-called “Red Wall”.

The Chancellor claims the cuts will “favour people right across the income scale”.

Amid suggestions of a leak of the 45p tax rate cut, shadow City minister Tulip Siddiq said: “The Financial Conduct Authority should investigate any potential wrongdoing, to determine whether it is possible that any leaks or information provided by this Conservative Government to their wealthy friends contributed to the collapse of the Pound.”

  • Up next
  • Up next
  • Up next
  • Up next

Latest Stories

  • C$ notches weekly gain as market works off oversold position

    The Canadian dollar strengthened against its U.S. counterpart on Friday as oil prices rose and the market took stock of recent losses for the currency, but the move was limited following the recent move in yield spreads in favor of the greenback. "The Canadian dollar coming back somewhat is simply technical from an oversold market," said Michael Goshko, senior market analyst at Convera Canada. The slowdown in Canadian inflation has contrasted with the recent heating up of U.S. price pressures, raising bets the Bank of Canada would begin easing interest rates before the Federal Reserve.

  • Jon Bon Jovi, supermodel Leomie Anderson and more party in London this week

    Celebrities were spotted across a string of events in the capital this week

  • US STOCKS-Nasdaq, S&P stumble as Netflix, chip stocks drag; AmEx boosts Dow

    The Nasdaq and the S&P 500 fell on Friday, as Netflix weighed but American Express kept the Dow on the plus side after quarterly earnings from each, while growing pessimism that the Federal Reserve would cut interest rates soon also dented sentiment. Netflix slumped 8.77% as one of the bigger drags on the benchmark S&P index and Nasdaq after the video streaming company's second-quarter revenue view fell short of analysts' expectations while the company also unexpectedly said it would no longer provide subscriber counts.

  • CANADA FX DEBT-C$ notches weekly gain as market works off oversold position

    The Canadian dollar strengthened against its U.S. counterpart on Friday as oil prices rose and the market took stock of recent losses for the currency, but the move was limited following the recent move in yield spreads in favor of the greenback. "The Canadian dollar coming back somewhat is simply technical from an oversold market," said Michael Goshko, senior market analyst at Convera Canada. The slowdown in Canadian inflation has contrasted with the recent heating up of U.S. price pressures, raising bets the Bank of Canada would begin easing interest rates before the Federal Reserve.

  • Major zoning shift would axe minimum parking, allow denser housing, save trees

    The City of Ottawa is looking to eliminate minimum parking rules, save space for trees and allow more neighbourhood-based businesses through a major rewrite of its zoning bylaw.It's only a first draft that must now go through about a year and a half of public consultation, redrafting and voting at council and its committees, but Coun. Jeff Leiper said it goes a long way to meeting the city's development goals."This zoning bylaw obviously allows considerably more density right across the city," s

  • Watch for Lyrid fireballs to light up the sky Sunday night

    One of the oldest known meteor showers peaks Sunday night. Check your weather forecast and find somewhere dark to watch for fireballs streaking across the sky.

  • Biden administration moves to make conservation an equal to industry on US lands

    BILLINGS, Mont. (AP) — The Biden administration on Thursday finalized a new rule for public land management that's meant to put conservation on more equal footing with oil drilling, grazing and other extractive industries on vast government-owned properties. Officials pushed past strong opposition from private industry and Republican governors to adopt the proposal. GOP members of Congress said in response that they will seek to invalidate it. The rule from the Interior Department's Bureau of La

  • Man sets himself on fire outside Trump trial in New York

    As jury selection finished, a man set himself on fire outside the court

  • World’s largest election under way as India’s Narendra Modi seeks third term

    Nearly a billion people are eligible to vote in India’s election with most polls predicting a win for Modi

  • Police reviewing allegations against suspended Tory MP accused of pay-off to ‘bad people’

    Officers consider Labour call for Lancashire force to investigate

  • Brother of Taylor Swift’s boyfriend sparks controversy by calling Welsh people ‘posh’

    Jason Kelce, a recently retired top American footballer whose brother dates the singer Taylor Swift, has sparked controversy by declaring in a podcast that Wales is “posh” and filled with “rich, upper class, just beautiful white people”.

  • Red Bull team will drive an F1 car on the streets of D.C. this weekend

    Red Bull is putting on a Showrun this weekend in Washington, D.C. that will have David Coulthard driving an RB7 down Pennsylvania Avenue.

  • From picking up trash on walks to avoiding receipts, 6 tips for keeping yourself — and the planet — healthy

    Ahead of Earth Day, here's how to score a win-win for you and Mother Nature.

  • Manchester United appoint Jason Wilcox as new technical director after 'acceptable' fee agreed with Southampton

    Former Man City academy director moves to Old Trafford with immediate effect

  • Full jury of 12 people and 6 alternates is seated in Trump's hush money trial in New York

    NEW YORK (AP) — A full jury of 12 people and six alternates was seated Friday in Donald Trump’s hush money case, setting the stage for expected opening statements next week in the first criminal trial of a former U.S. president. Lawyers spent days quizzing dozens of New Yorkers to choose the panel that has vowed to put their personal views aside and impartially judge whether the presumptive Republican presidential nominee is guilty or not. The jury includes a sales professional, a software engin

  • USDA confirms cow-to-cow transmission a factor in bird flu spread

    The U.S. Department of Agriculture said this week that cow-to-cow transmission is a factor in the spread of bird flu in dairy herds, but it still does not know exactly how the virus is being moved around. Dairy herds in eight states tested positive over the past month, along with one dairy worker in Texas. "Those of us that have worked with influenza for a long time were fairly quickly saying, 'Yep it moves cow to cow,'" Jim Lowe, an associate dean at the University of Illinois College of Veterinary Medicine, said on Friday.

  • Former police officer accused of filming sex with ‘vulnerable’ junior cleared of charges

    A former police chief inspector has been found not guilty of misconduct in public office after he was accused of forming a sexual relationship with a junior officer.

  • Canada urges halt to escalating violence as Israel suspected of airstrike on Iran

    OTTAWA — The prime minister is urging de-escalation of tensions in the Middle East, though he stopped short Friday of condemning Israel for a suspected retaliatory strike in Iran that Canada had counselled against. Justin Trudeau said Canada condemns Iran's "absolutely irresponsible" missile attack on Israel over the weekend, saying it created the danger of more escalation. He once again called for more humanitarian aid to flow into the Gaza Strip and for the militant group Hamas to lay down its

  • Three injured in vehicle accident in downtown Woodstock

    The Woodstock Police Force report members are investigating a single-vehicle collision early Friday morning on Carleton Street in downtown Woodstock. “At approximately 12:30 a.m, a side-by-side off-road vehicle rolled over, resulting in significant injuries to the occupants,” Deputy Chief Mark Bennett said in a statement released around noon Friday, April 19. “Three passengers in the vehicle were transported to and remain in the hospital with serious but non-life-threatening injuries.” The polic

  • Ask the Expert: What is causing my Mercedes automatic to slip out of gear?

    I have an elderly but lovely Mercedes-Benz E320 diesel estate with 140,000 miles. Recently, on two occasions, the automatic gearbox seemed to have slipped into neutral, not providing any drive. It only lasted a few moments and did not require breakdown recovery. Mechanics at my local garage seem baffled and suggested changing the gearbox oil; the cost could be £400-£500, which seems excessive if it does not solve the problem. Any ideas?