The latest news from the financial markets suggests the cost of living crisis will get worse, as Shehab Khan reports
The Treasury attempted to reassure markets that the economy is in safe hands after the pound slumped to an all-time low.
Sterling fell to its lowest level against the dollar since decimalisation in 1971 early on Monday morning, after Kwasi Kwarteng suggested another round of tax cuts would follow those he unveiled last week in the biggest tax slashing event in half a century.
In a statement released by the Treasury on Monday, the chancellor pledged to outline in November how he’ll reduce the government's spiralling debt exacerbated by his mini-budget announcement on Friday.
Shortly after, the Bank of England warned it will not hesitate to change interest rates “by as much as needed” to get inflation under control in an emergency statement.
After the pound made a small recovery earlier in the day, the uncertainty following the Treasury and the Bank's statements pushed the pound back down.
The Treasury said Mr Kwarteng would bring forward an announcement of a “medium-term fiscal plan” to start bringing down debt levels following an adverse reaction to his £45 billion package of tax cuts set out on Friday.
It said it would now be published on November 23, having previously been slated for the new year, and will include further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term.
At the same time the Office for Budget Responsibility (OBR) will publish its updated forecasts for the current calendar amid widespread criticism that there was no update when Mr Kwarteng set out his “plan for growth” last week.
The Treasury also confirmed that there will be a Budget in the spring, with a further OBR forecast.
Labour earlier accused the government of "fuelling inflation with tax" and said the pound falling is a reflection on the chancellor's mini-budget, warning it will "have repercussions for all of us and our standard of living".
Shadow Chancellor Rachel Reeves told ITV News: "It has repercussions for all of us. A weaker pound means a higher prices of imports from the US, Europe and elsewhere - particularly oil which is priced in dollars.
"We already have a cost of living crisis and this will add to that."
The pound's nosedive is sparking anxiety the currency could hit parity with the US dollar for the first time in history.
Sterling fell by more than 4% to just USD$1.0327 dollars in early Asia trade before it regained some ground to about $1.06 early on Monday and later to about $1.09.
The euro also hit a fresh 20-year low amid recession and energy security fears.
The value of the pound fell 3% on Friday as Mr Kwarteng's plan for borrowing more than £70 billion spooked investors.
The slide continued as trading opened in Australia on Monday, fuelling predictions that sterling could hit the same value as the US dollar by the end of the year.
Earlier on Monday, Mr Kwarteng refused to comment on the slump - but later in the afternoon, he put out an emergency statement in an apparent attempt to reassure markets.
Experts warned the pound’s plunge towards parity with the dollar will send the cost of goods soaring even higher, potentially worsening the cost of living crisis, while it also means it will be more expensive for the government to borrow money.
Mr Kwarteng's economic package was met with alarm by leading economists, some Tory MPs and financial markets – with the pound tumbling to fresh 37-year lows hours after his mini-budget announcement.
The shadow chancellor described Mr Kwarteng and Liz Truss as "two gamblers in a casino chasing a losing run", as she described their tax cut plans as "irresponsible, reckless and grossly unfair".
"But they’re not gambling their money - they’re gambling all of our money," she told ITV News from the Labour Party conference in Liverpool.
She said "concerning" news of the pound tumbling is a reflection on the chancellor's statement, which will result in higher borrowing costs "for everybody else" through their mortgages, for example.
Ms Reeves said such trickle-down economics have "failed in the past" and "won't work this time either".
Financial expert Louise Cooper explains how the pound plummeting will impact those with mortgages, credit cards and other types of loan
Mayor of Manchester Andy Burnham echoed her comments and said the government is "giving away money the country hasn’t got".
Mr Burnham told ITV News: "They’ve borrowed to give away billions to people who are some of the wealthiest in this country...
"And the markets are showing that they don't have confidence in what the government is doing. They’re giving away money the country hasn’t got."
He accused the government of "throwing money out everywhere" and said a more "responsible" response to the cost of living crisis would target struggling families "whose heads are in danger of slipping beneath the water".
Three days after his fiscal statement, Mr Kwarteng indicated his announcements were just the beginning of the government’s agenda designed to revive the UK’s stagnant economy.
He said: “We’ve only been here 19 days. I want to see, over the next year, people retain more of their income because I believe that it’s the British people that are going to drive this economy.”
He and Prime Minister Liz Truss have defended the package, despite analysis suggesting the measures, which include abolishing the top rate of income tax for the highest earners and ending a cap on bankers bonuses, will see only the incomes of the wealthiest households grow while most people will be worse off.
The chancellor told BBC’s Sunday With Laura Kuenssberg programme that the cuts “favour people right across the income scale” and insisted he is “focused on tax cuts across the board” - batting off suggestions his plans favour the rich.
Ms Truss said her government was “incentivising businesses to invest and we’re also helping ordinary people with their taxes”.
In an interview with CNN, she rejected comparisons with Joe Biden’s approach, after the US president said he was “sick and tired of trickle-down economics”.
The prime minister told the US broadcaster: “We all need to decide what the tax rates are in our own country, but my view is we absolutely need to be incentivising growth at what is a very, very difficult time for the global economy.”
Asked whether she was “recklessly running up the deficit,” Ms Truss said: “I don’t really accept the premise of the question at all.”
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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.
Asked whether he was nervous about the diving pound, falling stock markets and rising cost of government borrowing, Mr Kwarteng said: “We’ve got to have a much more front-footed approach to growth and that’s what my Friday statement was all about."
Asked whether he has confused the public by pumping money into the economy while the Bank of England raises interest rates in a bid to curb inflation, Mr Kwarteng said the government had to change tack due to the Covid-19 pandemic and the Russia’s invasion of Ukraine.
Opposition parties said the government’s plans were an admission of 12 years of Tory economic failure.
Labour leader Sir Keir Starmer hit out at the government’s “wrongheaded” economic policies as he pledged to reverse the income tax cut for people earning more than £150,000.
The Labour conference in Liverpool is expected to focus on capitalising on the controversy over the Conservatives' tax-slashing measures in coming days.
Liberal Democrat Treasury spokesperson Sarah Olney said: “Kwasi Kwarteng and this Conservative government are staggeringly out of touch. He showed in his budget that banks and billionaires come first, while families and pensioners come last.
“This government has shown its true colours, making regular people pay in the long run for their economic vandalism”.