Chris Mason
Political editor

All eyes are on the markets. Including eyes across government.

Ministers aren’t saying anything publicly. But the impression I am left with is they want to ride this out.

As things stand, they have little option but to do exactly that.

They hope it is short term volatility. They hope that the UK, with the second lowest GDP/debt ratio in the G7, is in a fundamentally strong place.

They hope to appear responsible: it’s no coincidence the Chief Secretary to the Treasury told the BBC over the weekend “we are going to stick to our spending plans that we have set out already”.

The Times confirms this morning that there will no Spending Review next year. But speak to others at Westminster and the language is very fruity.

“This is very worrying. All the wheels could come off,” said one Conservative MP to me just now.

Work and Pensions Secretary Chloe Smith declined to comment on the pound's fall against the dollar when asked about it on Sky News.

"I am not going to be able to comment on particular market movements and there are various factors that always go into those," Ms Smith said.

She said the government was focused on "delivering the growth package as we set out".

Image source, Reuters

Labour's shadow chancellor Rachel Reeves has described the fall in sterling as "incredibly concerning".

She told BBC Breakfast the chancellor had taken a "reckless gamble" with his announcements on Friday.

"There is something unique happening to sterling after the chancellor's statement," she said.

"The chancellor's package on Friday has caused the selling of sterling. As a result it's going to mean higher inflation and a higher borrowing costs.

"We need to hear from the chancellor his plans to get a grip on the public finances because that is what is giving real concern to market traders."

Speaking about tax plans, she said cutting the basic rate of income tax was right because of the cost of living crisis, saying: "Ordinary working people need a break."

Faisal Islam
BBC Economics Editor

Whatever is said in public, behind the scenes the government will be deeply concerned waking up to record lows, as well as the surge in UK government borrowing costs, in particular. Market opening in Europe this morning will be being watched nervously.

The moves reflect a combination of Britain being charged more for larger borrowings and the Bank of England now predicted to raise interest rates much more aggressively.

These rates will effectively be passed on to household and commercial borrowers of fixed term loans. While the injection of cash from tax cuts should help temper the recession, very fast rate rises could make that worse.

It is an unusual and concerning sign that these borrowing costs are going up at the same time as the value of sterling has fallen sharply. Sterling fell significantly versus the dollar on Friday and again on Monday morning. Some financial markets indicate a one-in-four chance of one pound being worth less than a dollar. It is effectively the lowest value for sterling against the dollar in the history of the US currency.

The last time the value of the pound was anywhere near $1.05 was in February 1985. Back then, the official line from Downing Street was also that the government was unworried by a slide in the pound, and that it was mainly the result of a strong dollar and speculation.

In private, official papers from that time reveal that then-PM Margaret Thatcher was seeking answers from President Ronald Reagan, and imploring the Treasury to set a trap for those speculating against the pound. Eventually the Bank of England raised interest rates to protect the value of sterling.

While the dollar has been very strong as its central bank the Federal Reserve has hiked interest rates aggressively, sterling was also weak against other major currencies such as the euro. Some economists and traders anticipate the Government or Bank of England could have to intervene in some form to shore up confidence.

Peter Escho, co-founder of investment firm Wealthi, told the BBC: "All currencies are getting sold off against the US dollar, so there is a large element of US dollar strength."

Trading volumes in Asia have also been low which can make movements in currency trading appear more pronounced.

However Mr Escho said: "But with the pound, it has really been exacerbated by news that the new government will be cutting taxes, which is inflationary.

"Add to that recent energy subsidies and news that the Bank of England might need to have an emergency rate-hike meeting, this all results in a sense of panic."

Jane Foley, a currency strategist at Rabobank, said the sell-off showed investors had doubts about the government's plans.

"They're worried that some of these tax cuts that have been announced aren't going to be fully-funded. That will result in a large amount of debt at a time when the Bank of England is going to be selling some of its holdings of UK government debt."

Stephen Innes, managing partner at SPI Asset Management told the BBC that the Bank of England will be forced to take emergency action.

"To stop the bleeding even temporarily, the Bank of England may well enter 'whatever it takes' territory to bring inflation down. An emergency meeting rate hike could happen as soon as this week to regain credibility in the market. We could even see a hike today."

On Monday morning in Asia - while most of the UK was sleeping - the pound slumped by more than 4% versus the US dollar.

That took sterling to a record low against the greenback.

It's worth noting that the slide came early in the Asia session, when pound-dollar trading can be volatile due to low volumes.

That said, despite regaining some ground, the pound is trading still at around $1.05.

The pound's slide came after Chancellor Kwasi Kwarteng on Sunday promised more tax cuts on top of a £45bn package he announced on Friday, amid expectations borrowing will surge.

Sterling, along with other major currencies, has also been under pressure due to the strength of the dollar.

Here's our news story

Hello and thanks for joining us. The pound has fallen to a record low against the dollar as markets react to the UK's biggest tax cuts in 50 years.

In early Asia trade, sterling dropped below $1.04 before regaining some ground to stand at about $1.05 early on Monday morning, UK time.

We'll bring you updates and analysis.