The Bank of England was forced into an emergency intervention on Monday, warning that it would not hesitate to hike interest rates “as much as needed” after the pound plummeted in the wake of Kwasi Kwarteng’s mini-Budget.
Sterling fell to its lowest ever level against the US dollar, dropping by more than 4 per cent to just $1.03 before regaining some ground.
The Bank issued a statement pledging to do whatever it takes to conquer inflation, while the chancellor promised new rules to get a grip on debt.
But the coordinated action was not enough to reassure markets and the pound began to slide once again, leaving Liz Truss with a huge political crisis after just three weeks in power.
Several mortgage lenders scrambled to pull from the market deals for new customers in anticipation of sharp rises.
Some Tory MPs are believed to have already sent in letters of no-confidence in the prime minister’s leadership, underlining how she was backed by only a minority of her colleagues at Westminster.
One “red wall” Conservative told The Independent that Friday’s package was “strange and stupid”, while a second lashed out at “Tea Party Republicans running the show”.
Jim O’Neill, the former Tory Treasury minister, pinned the blame on Mr Kwarteng for spooking investors by not allowing the independent Office for Budget Responsibility (OBR) to assess the cost and impact of his Budget.
“It’s just created a view around the world of what on earth is going on inside the British government and that there aren’t really many adults in the room, let’s say,” the peer said.
Labour’s shadow chancellor, Rachel Reeves, called the Bank’s intervention “unprecedented and a damning indictment” of the chancellor’s “irresponsible actions”.
But she criticised a two-month delay before Mr Kwarteng’s next statement, saying: “There is no time to waste – waiting until November is not an option. The government must also look again at the plans they put forward.”
Kwasi Kwarteng’s min-budget has spooked investors and seen the pound plummet
Earlier, the pound plunged to a 37-year low and government borrowing costs topped those of Greece and Italy as traders took fright over the radical change in economic policy.
Traders are now betting on rates of 6 per cent next year, up from the current 2.25 per cent – a level unthinkable only days ago – which would punish homeowners with big leaps in mortgage costs.
The Resolution Foundation think tank said someone with 17 years to pay on a £140,000 mortgage, an example used by the Bank, would have to find a further £80 a month, or nearly £1,000 a year.
One senior Tory backbencher tore into Ms Truss and Mr Kwarteng for making a Labour election victory far more likely after one poll handed the party a 12-point lead.
“It’s been deeply damaging to our reputation on the economy – but that’s what happens when you have ideologues running the show,” the MP said, adding: “They’re like Tea Party Republicans or right-wing Corbynistas.”
A second Conservative in a red wall seat told The Independent: “The bankers’ bonus thing and scrapping the 45p rate were very strange and stupid. They’re just going to wind people up in the red wall.”
The immediate future was looking bleak for the 1.8 million households due to come off fixed-term mortgages next year after many years of rock-bottom borrowing costs.
The Resolution Foundation also raised the alarm over the rising cost of selling gilts – now higher, for five years, than for governments in Spain, Portugal, Italy or Greece.
It would add £14bn a year to borrowing by 2026-27, on top of the eye-watering £400bn already earmarked over the next five years by the chancellor.
The Liberal Democrats have challenged Mr Kwarteng to resign if the pound continues its slump and reaches parity with the dollar for the first time.
