Pound plunges to new 1985 low under $1.10

The British pound tumbled Friday to a 37-year low under $1.10 as a tax-cutting UK budget sparked public finance concerns while recession fears mounted.

In afternoon deals, sterling slumped 2.7 percent to $1.0956, which was last seen in 1985 -- when it had struck an all-time low of $1.0520.

"Sterling is in danger," said Deutsche Bank analyst George Saravelos.

"The very large, unfunded tax cuts and other fiscal giveaways ... only strengthen our worries."

Read more | Bank of England hikes rate again as UK enters recession

The UK's new government on Friday unveiled a multi-billion-pound package to support households and businesses hit by the highest inflation in decades, cutting taxes as the nation heads for recession.

Finance minister Kwasi Kwarteng said caps on soaring energy bills would cost about £60 billion ($68 billion) in the first six months.

Kwarteng also reversed planned tax hikes on both company profits and salaries, citing the government's drive for growth.

He also axed a cap on bankers' bonuses, and brought forward a plan to cut the lowest rate of income tax -- and reduced the highest to 40 percent from 45.

"These measures will add to the already major prospective uplift in government borrowing from the cap on energy bills for households and businesses coming into effect in October," said EY analyst Martin Beck.

"With gilts yields at a decade high and sterling falling significantly in recent months, more borrowing presents risks, and its outcome will depend on the economy's future growth performance."

The mini-budget comes as economists warned that Britain was likely already in recession, as rocketing fuel and food prices take their toll.