The British pound has plummeted to a record low of more than four percent against the American dollar for the first time in history.
The Sterling plunged nearly five percent to $1.03 on Monday morning (September 26) during trading in Asia and Australia before recovering some ground to stand at $1.08.
The currency slump follows the British Chancellor of the Exchequer Kwasi Kwarteng's announcement on Friday (September 23) that the United Kingdom would implement the biggest tax cuts since 1972, per CNN
The 47-year-old's policy puts the nation at odds with most major global economies with soaring inflation and the cost-of-living crisis.
The tax cuts - which include ditching plans for an increase in corporation tax and cutting the top rate of income tax - have been denounced as "trickle-down economics" by the opposition Labour Party.
It was even criticized by members of the Kwarteng's own Conservative party. Additionally, the Chancellor hinted in TV interviews on Sunday (September 25) of more tax cuts to come - stating that Friday’s announcement was "just the start".
Jim O’Neill, former Goldman Sachs Asset Management chairman, and a former UK Treasury minister told CNBC that the pound’s fall shouldn’t be mistaken as the strength of the dollar.
"It is a consequence of an extremely risky budget by the new chancellor and a rather timid Bank of England that, so far, has only raised rates reluctantly despite all the clear pressures," he said.
Spectators are warning that the pound could fall even further. Jessica Amir, of Saxo Capital Markets, said the crash shows the market's "lack of confidence" in the UK and that "its financial strength is under siege".
"The pound is a whisker away from parity and the situation is going to only worsen from here," Amir added, according to France24.
As reported by the Guardian, city economists indicated that the recession in the pound could push the Bank of England into an emergency interest rate rise to support the currency.
Paul Dales, the chief UK economist at Capital Economics, suggested that the Bank could come out with "tough talk," saying: "That could involve something like a 100bps or 150bps hike in interest rates (to 3.25%/3.75%), perhaps as soon as this morning."
In addition, leading economist Mohamed El-Erian said the Bank should raise the interest rate "by one full percentage point to try and stabilize the situation," as reported by the Independent.
The outlet reported that Sir John Gieve, the former deputy governor of the Bank of England, said to the BBC: "That is what they’ll have to do if they want to change base [interest] rates."
However, he added that emergency meetings such be "avoided if at all possible" and that he is sure the Bank will until further notice.
As the markets continue to fall at the new Prime Minister Liz Truss' plans, Sky News reported that some members of the Conservative party are already submitting letters of no confidence in her - only three weeks into her terms - noting worries that she will "crash the economy".
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