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Pound falls below $1.10 for first time since 1985 following mini-budget

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The pound has fallen below $1.10 for the first time since 1985 as investors took fright at the prospect of a surge in government borrowing to pay for Kwasi Kwarteng’s sweeping tax cuts.Issuing a punishing verdict on the chancellor’s “dash for growth”, traders sent sterling tumbling on Friday in a broad-based sell-off in response to the huge rise in public borrowing required to finance his plans.Analysts at the US investment bank JPMorgan said the market reaction demonstrated “a broader loss of investor confidence in the government’s approach”, reflecting the damage to Britain’s standing in global markets.Citi analysts said the chancellor’s tax giveaway, the biggest since 1972, “risks a confidence crisis in sterling”.The pound was down two and a half cents against the dollar to a fresh 37-year low of $1.0993 as fears over the future path for the public finances also triggered a surge in government borrowing costs.

The fall below the symbolic $1.10 mark came after the chancellor announced £45bn of tax cuts directed at higher earners.The FTSE 100 fell more than 2% to trade below 7,000 for the first time since early March, after Russia’s invasion of Ukraine, while the cost of borrowing for the UK government on international markets rose by the most in a single day for more than a decade.Two-year UK government bond yields – which are inversely related to the value of bonds and rise as they fall – jumped by as much as 0.4 percentage points to come close to 4%, reaching the highest level since the 2008 financial crisis.Borrowing costs on 10-year bonds rose by more than 0.2 percentage points to trade close to 3.8%, continuing a dramatic climb under way since Liz Truss took over as prime minister earlier this month.

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