Cambridge MP warns of ‘severe consequences’ as pound hits all-time low against dollar

Cambridge’s Labour MP warned of “severe real-life consequences” for people after Sterling hit an all-time low against the dollar after a day of turmoil on the markets.

The run on the pound started on Friday when the Chancellor, Kwasi Kwarteng, unveiled his so-called ‘mini-budget’, which included a £45billion package of tax cuts funded by borrowing.

Mr Kwarteng announced that a move to decrease basic rate of income tax to 19p would be brought forward to April, while - in a surprise move - he abolished the 45 per cent top rate of tax for higher earners, except for in Scotland.

There was criticism that, as it was not a true Budget, Mr Kwarteng’s “plan for growth” last week evaded the scrutiny of the Office for Budget Responsibility (OBR).

But the markets responded negatively, fearing that the tax cuts will fuel inflation rather than boost growth.

As the pound slumped, the Chancellor announced he would bring forward an announcement of a “medium-term fiscal plan” to start bringing down debt levels. The Treasury said it would now be published on November 23, having previously been slated for the new year, and will include further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term.

And the OBR is set to publish its updated forecasts for the current calendar.

Sterling fell by more than four per cent to just $1.03 in early Asia trading before rebounding to $1.09 on Monday afternoon as speculation mounted over an intervention by the Bank of England. The pound ended the day at $1.07 against the pound.

The market assessment is that official borrowing costs would have to rise to 5 per cent to reverse sterling’s slide – a move that would severely increase mortgages.

Bank of England governor Andrew Bailey welcomed the Chancellor’s commitment to “sustainable economic growth” as well as the promise to involve the OBR.

He said the Bank’s monetary policy committee, which sets interest rates, will make a full assessment of the impact on inflation and the fall in sterling, at its next scheduled meeting in November and then “act accordingly”.

“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the two per cent target sustainably in the medium term, in line with its remit,” he said in a statement. The bank raised interest rates to 2.25 per cent last week.

Experts warned the pound’s plunge towards parity with the dollar will send the cost of goods soaring even higher, worsening the cost-of-living crisis, while also making it more expensive for the government to borrow money.

Daniel Zeichner, Cambridge’s Labour MP, told the Cambridge Independent: “The pound has plummeted, which is going to have severe real-life consequences. It will make energy costs more expensive. We import half of our food, so the cost of everything from courgettes to bananas will go up.”

He added: “At a time when so many people are struggling to keep up with basic living costs, the Prime Minister and her cabinet of free marketeers are focused on tax cuts for the super-rich. Spiralling inflation and rising living costs are hitting Cambridge people hard.”

Shadow chancellor Rachel Reeves accused Mr Kwarteng and Ms Truss of recklessly gambling with the UK’s finances.

The Labour MP told Times Radio: “Instead of blaming everybody else, the Chancellor and the Prime Minister, instead of behaving like two gamblers in a casino chasing a losing run, they should be mindful of the reaction not just on the financial markets but also of the public.”

She added: “They’re not gambling with their own money, they’re gambling with all our money, and it’s reckless and it’s irresponsible as well as being grossly unfair.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “There is now a tense stand-off between the Bank of England and the Treasury, with policymakers determined to try to bring down inflation by dampening down demand, while politicians are focused intently on trying to boost demand and promote their growth agenda.

“The worry is that not only will borrowing balloon to eye-watering levels, but that the fires of inflation will be fanned further by this tax giveaway, which offers higher earners the bigger tax break.”

The pound’s tumble makes it more expensive to import goods and commodities, such as food, clothes, oil and gas.

Both Lucy Frazer, the Tory MP for South East Cambridgeshire who was made minister of state for transport earlier this month, and Anthony Browne, Tory MP for South Cambridgeshire, were invited to comment.