A Treasury minister was left red-faced after claiming the tax-slashing mini-Budget had pushed up the value of the pound – moments before it plunged to a 37-year low.
Sterling dropped almost two cents against the dollar and fell against the euro – while public borrowing costs soared – as markets reacted badly to what the government calls its “Growth Plan”.
By midday, sterling was plumbing new depths at $1.106 and dropped to €1.132 against the euro, its weakest level since February 2021.
Even more worryingly for the chancellor, the interest rate – or yield – demanded by the markets to buy two-year UK gilts surged to its highest level since the financial crisis of 2008.
The Treasury acknowledged that the cost of government borrowing in the 2022-23 fiscal year has rocketed by £72bn to £234bn – twice the size of the primary school budget.
Great to see sterling strengthening on the back of the new UK Growth Plan https://t.co/Ec8tgXkgKd
— Chris Philp (@CPhilpOfficial) September 23, 2022
Earlier, the levelling up secretary Simon Clarke shrugged off fear in the financial markets, telling Sky News: “What the markets want to know is that the UK is going to grow.”
But Rachel Winter, of the investment managers Killik & Co, warned of a lack of confidence in the government’s plans, saying: “The pound is down 15 per cent against the dollar over the last six months and this morning’s Budget has sent it down further.”
And Philip Dragoumis, owner of Therea Wealth Management, said: “If foreign investors lose confidence in the country, its government and economy, which is happening at scale, sterling could fall much further and the fallout will be devastating.”
The unease of some Conservative MPs at the dramatic shift in policy by the new government as laid bare during debate in the Commons chamber.
Kevin Hollinrake told Mr Kwarteng: “Growth and cutting taxes are two conservative principles – so are balancing the books. The deficit this year will be in region of £250bn.”
Bob Neill said the Tories must stand for sound money, adding:“We must keep an eye on inflation, because we do not want the benefit of the stamp duty cut to be eroded for many homeowners by the increased mortgage costs.”
And Jeremy Wright warned: “Confidence will evaporate if people’s costs on their mortgages increase further than the benefits that they gain from tax reductions.”