Pound drops to lowest level since 1985 on the day Liz Truss named as next British PM

It fell 0.3 per cent in early Monday trading in Asia to $1.1475, according to FactSet

Liz Truss and Conservative Party chairman Andy Stephenson arriving at the Conservative Campaign Headquarters in London on the day she was named the party's new leader. Photo: PA

The pound touched its lowest level since 1985 in the hours before Liz Truss was named Britain's next prime minister.

The British currency fell below its coronavirus pandemic lows against the dollar before the announcement of Ms Truss's victory in the Conservative leadership race, which was widely expected.

It was 0.3 per cent down $1.1475 in early Monday trading in Asia, according to FactSet. That means it has been 37 years since British holidaymakers in the US have received so little for their pound.

Sterling briefly fell to a low where one pound could buy only $1.1443 dollars, below the $1.14506 it touched on March 19, 2020.

It climbed to $1.1507 after the announcement before quickly resuming its fall, and was trading at $1.1491 an hour later.

The fall will make imports considerably more expensive for Britons, due to the fact that much global trade is transacted in dollars.

An index tracking the UK’s 100 biggest stocks opened sharply lower, down 60 points.

The FTSE 100 climbed by only one point in the minutes after the announcement of Ms Truss’s win before briefly falling and resuming its rise, hitting 7,249 by 1.30pm BST.

Ms Truss has promised to tackle Britain’s economic woes “in a fiscally responsible way” amid concerns from investors that her tax-cutting plans will worsen the inflation crisis.

Kwasi Kwarteng, widely tipped to be chancellor of the exchequer in a Truss Cabinet, sought to reassure markets by saying that Britain could afford the higher spending needed to tackle the cost of living crisis.

“Given the severity of the crisis we face, there will need to be some fiscal loosening to help people through the winter,” Mr Kwarteng wrote in the Financial Times.

“But I want to provide reassurance that this will be done in a fiscally responsible way. Liz is committed to a lean state and, as the immediate shock subsides, we will work to reduce the debt-to-GDP [gross domestic product] ratio over time.”

Policies to deal with inflation became the key dividing line between Ms Truss and her rival Rishi Sunak as the two-month contest to succeed Boris Johnson unfolded.