Sterling fell 0.89 percent to US$1.115 as Kwasi Kwarteng outlined his “growth plan” for the British economy on Friday morning. It has since stabilized at around $1.119, but that remains below the previous 37-year low hit earlier this week after interest rate hike concerns hit the currency. It comes after the Bank of England initiated another interest rate hike of 0.5 percentage points to 2.25% on Thursday and warned that the UK could already be in recession. The central bank had previously forecast that the economy would grow in the current fiscal quarter, but said it now believed gross domestic product (GDP) would contract by 0.1%, meaning the economy would have seen two consecutive quarters of decline – the technical definition of recession. This chart shows the progression of Britain’s corporation tax rate since 2010 (Press Association Images) The chancellor, who was appointed on September 6, set out his first “mini budget” at a time when the UK is facing a cost of living crisis, recession, soaring inflation and rising interest rates. The 45p rate of income tax paid by Britain’s highest earners will be scrapped, in the biggest surprise of Mr Kwarteng’s plan. The chancellor also accelerated a planned cut in the key rate by 1p – from 20p. at 7 p.m. – which will now come into force next April. Mr Kwarteng claimed scrapping the 45p rate for people earning more than £150,000, already cut from 50p by George Osborne a decade ago, “will simplify the tax system and make Britain more competitive ». The chancellor also confirmed he is canceling the cap on bankers’ bonuses, while reversing a rise in National Insurance contributions, which will also overwhelmingly benefit the wealthy, analysts say. Mr Kwarteng said his economic vision would “turn the vicious cycle of stagnation into a virtuous cycle of growth”. But shadow chancellor Rachel Reeves said the strategy amounted to an “admission of 12 years of economic failure” under successive Conservative governments. By calling it a “fiscal event” rather than a full budget, Mr Kwarteng avoided direct scrutiny and forecasts from the Office for Budget Responsibility. Kwasi Kwarteng prepares his first “mini budget” in parliament since his appointment as Chancellor of the Exchequer. (Parliamentary Recording Unit (PRU)/AFP via Getty Images) Economists had warned that the chancellor’s ambitions to cut taxes could put further pressure on the pound, which has also been weighed down by the strength of the US dollar. Former Bank of England policymaker Martin Weil warned the new government’s economic plans would “end in tears” – with the pound soaring in an event similar to that recorded in 1976. Economists at ING also warned on Friday that the pound could fall further to 1.10 against the dollar amid difficulties in the gold market. Chris Turner, head of global markets at ING, said: “Typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be financed with confidence. “That’s the rub – investors have doubts about the UK’s ability to fund this package, hence the underperformance. “With the Bank of England committed to reducing its gold holdings, the prospect of indigestion in the gold market is real and should keep sterling vulnerable.” Meanwhile, concerns about higher interest rates and pressure on consumer spending continued to weigh on the stock market. The FTSE 100 was down 1.48 percent at 7,054.64 in early trade – its lowest level since mid-July. According to a document released by the Treasury after Mr Kwarteng’s statement, the plans outlined by the chancellor would cost £161m over five years. The cost of the combined rescue of energy bills for homes and businesses is around £60 billion in the first six months, with the government needing to borrow most of the money to cover the cost. This means that Mr Kwarteng will be forced to turn to international markets. Governments borrow money by selling female IOUs, a type of IOU, in international markets. Anyone can buy them, such as through premium bonds, but most buyers are banks, pension funds and other large institutions. They are usually considered “safe” because the risk of them not being returned is considered small. As with most loans, the government promises to repay what it borrows, plus interest rates are rising in most of the West, including the United States, home to some of the world’s biggest lenders. By borrowing more money, the government is adding to the national debt which, according to the latest figures available, currently stands at £2.4tn. Because interest rates rise, it becomes more expensive for the government to borrow money, which will have to be paid back at some point in the future, possibly through higher taxes. In the wake of Mr Kwarteng’s statement, the yield on the UK’s benchmark 10-year bond – which reflects the government’s borrowing costs – rose sharply to 3.8%. Additional reporting from the Press Association