Pound falls below $1.09 for first time since 1985 following mini-budget

The pound fell by three and a half cents against the dollar to a fresh 37-year low, trading below $1.09, as fears over the future path for the public finances also triggered a surge in government borrowing costs. The fall came after the chancellor announced £45bn of tax cuts directed at higher earners.

The yield on 10-year bonds rose more than 0.2 percentage points, close to 3.8%, continuing a dramatic climb under way since Liz Truss took over as prime minister earlier this month. At the start of September, yields on benchmark UK sovereign debt have risen by almost one percentage point, significantly more than for comparable advanced economies.

Finance industry leaders said UK assets were tumbling by a much bigger extent than comparable leading economies.

However, investors said Britain was being singled out after years of the government damaging its reputation for sound economic management, compounded by the steps being taken by the new prime minister.

It comes at a time when the Bank of England is also selling £80bn of gilts held on its balance sheet built up under its quantitative easing programme, adding to the large volume of government bonds being sold to investors.