Sterling falls to record low of $1.035 against the dollar

Sterling slid as much as 4.7 per cent against the dollar to $1.035, hitting a record low in Asian trading on Monday after UK chancellor Kwasi Kwarteng vowed to pursue more tax cuts.

Kwarteng on Friday unveiled a £45bn debt-financed package containing the biggest set of tax cuts for 50 years. UK government bonds sold off sharply, with the 10-year gilt yield surging 0.27 percentage points on heavy selling to hit 3.77 per cent.

The tax cuts come as the UK is expected to spend £150bn on subsidising energy costs for consumers and businesses. A large portion of this borrowing is expected to be financed by gilts.

Unlike with big tax cuts in the 1980s, Kwarteng is borrowing tens of billions of pounds to fund his plans, adding to demand at a time the Bank of England is raising rates to bring inflation under control.

The Bank of England raised interest rates by 0.5 percentage points on Thursday, after a third successive 0.75 percentage point rate increase by the US Federal Reserve last week.