The value of the pound is likely to tumble if Liz Truss wins the Tory leadership contest and embarks on big tax cuts, City analysts and investors have warned.
The foreign secretary is seeking to win over Conservative Party members with her £30bn pledge to bring down taxes immediately, including reversing the national insurance rise that was implemented in April, suspending green levies on energy bills and scrapping a proposed increase in corporation tax.
The approach has put her at odds with rival Rishi Sunak, the former chancellor, who said early tax cuts would worsen inflation.
Financial analysts and fund managers have predicted that such plans could lead to a big increase in government borrowing and knock the pound, saying whoever takes over at No 10 will have little room to manoeuvre.
Figures from the Office for National Statistics showed interest payments on government debt climbed to an all-time high of £19.4bn last month, pushed by inflation to more than double the previous record.
