A weak pound makes it more expensive to buy imported goods and risks pushing up the rising cost of living even further.
Imports of commodities priced in dollars, including oil and gas, are also more expensive.
Investors are now predicting that interest rates could more than double by next spring to 5.8% from their current 2.25%, to curb high inflation, which is expected to be fuelled by the huge tax cuts announced in Friday's mini-budget. "Sterling has fallen because market traders have been frightened by the government's policies, and I think they got further frightened by the sense over the weekend that this was only the first instalment of some tax cuts."
Paul Dales, chief UK economist at Capital Economics, said given the pound had fallen back since the statements from the Bank and the Treasury the markets "may well need more reassurance and some actual action", saying a change in policy from government or an interest rate hike from the Bank at an emergency meeting before 3 November may be necessary.
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