Britain's anxious wait: Pound stable on Asian markets ahead of City opening after record breaking plunge

27 September 2022, 00:27 | Updated: 27 September 2022, 07:05

The value of the pound fell to a record low on Monday before rallying slightly
The value of the pound fell to a record low on Monday before rallying slightly. Picture: Alamy

By Daisy Stephens

The pound remained stable as Asian markets opened after nosediving twice yesterday with the Bank of England reportedly planning an urgent ruse to interest rates within days.

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In the small hours this morning the pound was trading at a little over $1.07 - with some Tory MPs reportedly furious with the PM and Chancellor, with talk of a new leadership contest already.

Former chancellors Sajid Javid and Rishi Sunak have both remained silent thus far for fear of talking down the pound further.

Some elements within the Tory party have said they are now worried the tax cuts in the mini-budget, that sparked the plunge in the pound, have destroyed the party’s reputation on economic competence.

It comes as some mortgage lenders were beginning to halt certain deals due to volatility of the pound.

Virgin Money and Skipton Building Society halted mortgage offers for new customers, but said submitted applications would still be processed.

Halifax said it would stop mortgages with product fees, which can result in better repayment rates.

The currency fell to a record low on Monday.

But the Bank could still be forced to hike rates within the next two days, warned Viraj Patel, a foreign exchange and global macro strategist at Vanda Research.

"No action from the BoE based on latest statement," he tweeted on Monday evening.

"This will be a disappointment for $GBP markets.

"I suspect this statement will last 24-48 hours before something breaks in markets & forces the BoE to act".

The Bank said on Monday it "will not hesitate" to raise interest rates, after the pound plunged in value and caused some of Britain's biggest lenders to pull mortgages from sale.

The governor, Andrew Bailey, said the Bank is monitoring developments in financial markets 'very closely' in light of the significant repricing of financial assets.

A statement released on Monday read: "In recent weeks, the Government has made a number of important announcements. The Government’s Energy Price Guarantee will reduce the near-term peak in inflation. 

Read more: Chancellor bids to calm markets after pound plunges and Bank says it will raise interest rates 'if necessary'

Read more: Banks pull mortgage deals for new customers as brokers predict major shift in UK mortgage market

"Last Friday the Government announced its Growth Plan, on which the Chancellor has provided further detail in his statement today. I welcome the Government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.

"The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term.

"As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly. The MPC will not hesitate to change interest rates as necessary to return inflation to the 2 per cent target sustainably in the medium term, in line with its remit."

'So, can you imagine just for a moment if we had a Labour Chancellor?'

On Monday morning the pound plummeted to a record low against the dollar after a raft of tax cuts announced by the chancellor Kwasi Kwarteng in a mini budget.

Sterling fell by more than 4 per cent to just 1.0327 dollars in early Asia trade - the lowest level since decimalisation in 1971.

It regained some ground to about 1.05 dollars early on Monday, when the euro also hit a fresh 20-year low amid recession and energy security fears.

Read more: From travel to food and mortgages to energy bills, what the plunging pound means for you

Read more: Political system open to being 'hacked' and is 'close to being corrupt', Andy Burnham tells LBC

Kwasi Kwarteng has previously brushed off questions about the markets' reaction to his mini-budget - which outlined the biggest programme of tax cuts for 50 years.

"I think that the Chancellor has made clear that he doesn't comment on the movements around the market and that goes the same for the Prime Minister," Liz Truss' official spokesman said today.

Amid speculation the Bank of England will be forced to again raise interest rates, the spokesman said: "I know he speaks regularly to the Governor of the Bank of England. I don't know when the next conversation is scheduled to be."

Sun's Deputy Political Editor comments on pound hitting all-time low

Mr Kwarteng on Sunday claimed the cuts "favour people right across the income scale" amid accusations they mainly help the rich.

A new OECD report today saw the current prediction for UK growth downgraded to flatlining entirely in 2023.

Gross Domestic Product (GDP) is set to grow by 3.4 per cent in 2022 as a whole, the body said in its interim outlook report. In June, the body said the economy was likely to grow by 3.6 per cent.

The impact of the plummeting value of the pound will be felt on imported goods including everything from clothes to electronic gadgets.

The AA says the fall in sterling has added £6 to the cost of a tank of fuel, as oil and some other commodities are priced in dollars.

Margret Thatcher once said "you can't buck the market' and 'this weekend has proved that"

It comes days after the Bank of England said the UK economy could already be in recession, forecasting that there was likely to be a 0.1 per cent decline in GDP over the current financial quarter.

Mr Kwarteng’s gamble put an extra £72bn on Britain’s debt.

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 - will see only the incomes of the wealthiest households grow while most people will be worse off.

Read more: Liz Truss facing backlash from cabinet over plans to loosen immigration rules

But Mr Kwarteng insisted he is "focused on tax cuts across the board".

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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