THE pound hit a new 37-year low following Kwasi Kwarteng’s £45 billion tax cut announcement on Friday.

Sterling fell sharply in the wake of the announcement, dropping under $1.11 against the US dollar for the first time since 1985.

The Chancellor’s plans to cut taxes for England’s high earners and reverse Boris Johnson’s National Insurance increase will require an extra £70bn of borrowing, he confirmed during the mini-budget.

This decision – in the biggest tax events for decades – spooked the market and sent sterling falling further, despite some recovery earlier in the day.

READ MORE: Nicola Sturgeon rips into Tories' mini-budget: 'Super wealthy laughing all the way to the bank'

Trevor Greetham, head of multi-asset at Royal London, commented: "Arguably, a significant, unfunded fiscal stimulus package like this would have made economic sense after the deflationary global financial crisis, when borrowing costs were low and private sector balance sheets were deleveraging.

"Now with spare capacity non-existent, inflation at a forty year high and the Bank of England trying to cool things down, we are likely to see a policy tug of war reminiscent of the stop-go 1970s. Investors should be prepared for a bumpy ride.”

Meanwhile Philip Dragoumis, owner of Therea Wealth Management, added: “If foreign investors lose confidence in the country, its government and economy, which is happening at scale, sterling could fall much further and the fallout will be devastating.”

Economists at ING also warned that the pound could fall further to 1.10 against the dollar amid difficulties in the gilt market.

Chris Turner, global head of markets at ING, said: “Typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be confidently funded.

“Here is the rub – investors have doubts about the UK’s ability to fund this package, hence the gilt underperformance.

“With the Bank of England committed to reducing its gilt portfolio, the prospect of indigestion in the gilt market is a real one and one which should keep sterling vulnerable.”

One Treasury minister was left humiliated after celebrating the pound’s very brief recovery on Friday, just moments before it started tumbling again.

“Great to see sterling strengthening on the back of the new UK Growth Plan,” Chris Philp wrote – before it fell to $1.132 against the euro by midday.

READ MORE: Tory mini-budget tax cuts will drive UK into 'economic chaos'

Meanwhile, concerns over higher interest rates and pressure on consumer spending continued to weigh on the stock market.

The FTSE 100 fell below 7000 points for the first time in around six months but climbed back to around 7023 points on Friday afternoon.

Meanwhile, Government gilt yields rocketed amid concerns over the size of the Chancellor’s tax cuts and spending plans.

The 10-year yield jumped around 0.25 percentage points amid a period of heavy selling by nervy traders.