Pound plunges below $1.10 as Kwasi Kwarteng announces ‘growth plan’

The pound fell sharply following chancellor Kwasi Kwarteng's announcement. Photo: Getty/Yahoo Finance UK
The pound fell sharply following chancellor Kwasi Kwarteng's announcement. Photo: Yahoo Finance UK/Getty

The pound (GBPUSD=X) dropped to a fresh 37-year-low against the dollar on Friday as UK chancellor Kwasi Kwarteng unveiled the government's "growth plan" for the UK economy.

Sterling declined as much as 3% $1.109 against the greenback, shedding 17% against the US currency so far this year, and inching closer to its all-time low of $1.0520.

Chris Beauchamp, chief market analyst at online trading platform IG, said: "We have to go back to March 2020 and the wild swings of the pandemic to find a time when the pound last suffered such a terrible week against the US dollar.

"Those hoping for a vote of confidence from the market in the government’s ambitious tax-cutting programme have been sorely disappointed; instead of giving people reason to be confident about the UK economy, they seem merely to have provided another reason to flock to the safety of the dollar."

It comes after Bank of England delivered another 0.5% interest rate hike to 2.25% on Thursday and warned the UK could already be in a recession.

Kwarteng announced tens of billions of pounds of increased spending and tax cuts in the mini-budget on Friday.

The tax cuts, which will reduce government income, come as Britain is expected to spend heavily to subsidise energy bills for households and businesses.

The chancellor said the energy support scheme would cost £60bn in its first six months.

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

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The Truss administration wants to put a rocket under growth, but there is a risk that after a first boost, the policies could crash and burn, particularly if government borrowing costs soar further.

"There are signs that buyers of UK government bonds are becoming even more nervous about the government’s ‘splash the cash’ policies, given the mounting debt pile.

"With inflation set to head above 10%, the Bank of England has warned it will be more aggressive if necessary if the measures brought in by the Truss government inflame hot prices further."

Watch: What is a recession and how do we spot one?