Markets hate Liz Truss’s UK plan. Just look at these tables

British pound It fell below $1.10 by mid-afternoon, hitting a new 37-year low against the greenback.

UK government bonds were also heavily sold. The yield on the UK’s 10-year government bond, which moves against prices, jumped by a quarter of a percentage point – a huge move in the world of bond trading. This raised borrowing costs. Measured by UK shares FTSE 100 (UK) In London, they reached their lowest level since March.

Finance Minister Kwasi Kwarteng said the government would cut personal income taxes and scrap plans to raise corporate taxes next spring, calling for “a new approach for a new era, focused on growth.” At the same time, he pledged to continue plans to subsidize the energy bills of millions of homes and businesses.

But investors remain unconvinced that the unconventional approach will actually help the economy, with the Bank of England warning this week that a recession is likely. Many of them considered it a big gamble.

“It’s very rare for a developed market currency to weaken at the same time as yields are rising significantly. But that’s exactly what has happened since. [Kwarteng’s] forecast,” Deutsche Bank strategist George Saravelos said in a note to clients on Friday.

Looking for parity with the dollar?

One concern is that it will require a large increase in government borrowing at a time when interest rates are rising rapidly. The Bank of England on Thursday pushed interest rates to their highest level since 2008. It was the seventh rate hike by the central bank since December.

Lowering taxes, even if politically popular, can increase demand and raise prices, making the central bank’s task of keeping inflation under control even more difficult.

Former US Treasury Secretary Larry Summers, speaking to Bloomberg Television, said that the pound may even fall below parity with the dollar for the first time in history. (The previous all-time high was over $1.05 in 1985).

“I’m sorry to say it, but I think the UK is behaving like a sinking market,” Summers said. “Between Brexit, how far behind the curve the Bank of England got and now these fiscal policies, I think Britain will be remembered for having the worst macroeconomic policies of any major country in a long time.”

The rise in the greenback as the Federal Reserve takes aggressive steps to contain inflation is increasing downward pressure on the British currency.

“Unless something can be done to address these fiscal concerns or the economy doesn’t show some surprising growth data, it looks like investors will continue to shun sterling,” Antoine Bouvet and ING’s Chris Turner said in a research note. “We think the market may be underestimating the parity options.”