The British pound hit a record low against the dollar Monday amid rising fears about the UK economy after the government unveiled a huge tax-cutting budget.
The pound fell below $1.10 for the first time since 1985 as new finance minister Kwasi Kwarteng announced his controversial mini-budget.
It traded at an all-time low of $1.0350 in Asian trade, and fell to a two-year low against the euro, sitting at 2002 levels. Observers are warning that the pound could fall even further.
“The pound’s crash is showing markets have a lack of confidence in the UK and that its financial strength is under siege,” said Jessica Amir, of Saxo Capital Markets.
“The pound is a whisker away from parity and the situation is going to only worsen from here.”
Kwarteng said he planned to slash taxes to kickstart the British economy and provide cash to cushion families from rocketing energy costs.
But investors were spooked by the huge amount of borrowing likely needed for the multi-billion-pound package, which critics said would benefit the rich far more than the poorest during a cost-of-living crisis.
There is a growing expectation that central bank interest rate hikes to fight runaway inflation would lead to deep and painful recessions.
