THE pound could fall below parity with the dollar and the euro amid the fall-out from the UK’s “mini-budget”, a former US Treasury Secretary has suggested.

Lawrence H Summers, previous chief of the US finance ministry between 1999 and 2001 under President Bill Clinton, criticised Chancellor Kwasi Kwarteng’s vow to cut taxes further and said he didn’t expect markets to “get so bad so fast”.

It comes as Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, said that the UK’s economic instability is “not helping” avoid a global recession.

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As a result of slashing taxes for high earners, lifting the cap on bankers' bonuses and scrapping the rise in corporation tax, the pound fell to an all-time low against the US dollar on Monday.

Sterling fell close to $1.03, but recovered to gain ground to $1.08, but it historically has never fallen below the dollar or euro.

Summers, who also served as director of the National Economic Council (NEC) of the US under president Barack Obama, said that when long rates go up as currency goes down it is a “hallmark of situations where credibility has been lost”.

Writing on Twitter, he added: “This happens most frequently in developing countries but happened with early Mitterrand before a U-turn, in the late Carter Administration before Volcker and with Lafontaine in Germany.

“British credit default swaps still suggest negligible default probabilities, but they have risen very sharply. I cannot remember a G10 country with so much debt sustainability risk in its own currency.

“The first step in regaining credibility is not saying incredible things. I was surprised when the new Chancellor spoke over the weekend of the need for even more tax cuts. I cannot see how the BoE [Bank of England], knowing the Government’s plans, decided to move so timidly.”

Summers added that the suggestion from the BoE that there is something “anti-inflationary” about unfounded energy subsidies is “bizarre”.

“Subsidies affect whether energy is paid for directly or through taxes now and in the future, not its ultimate cost,” he added.

“The magnitude of Britain’s trade current account deficit underscores the seriousness of its challenges.

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“My guess is that [the] pound will find its way below parity with both the dollar and euro.”

Summers also surmised that British short rates will triple in the next two years and go above 7%, as US rates are now projected to hit 5% but the UK has a much higher rate of inflation.

He added: “Financial crisis in Britain will affect London’s viability as a global financial centre so there is the risk of a vicious cycle where volatility hurts the fundamentals, which in turn raises volatility.

“A currency crisis in a reserve currency could well have global consequences. I am surprised that we have heard nothing from the IMF [International Monetary Fund].”

Meanwhile, Bostic, president of one of 12 US federal banks across the country, said there were “real concerns” in the United States over the reaction to Kwarteng’s “mini-budget”, which saw the pound collapse and some mortgages stopped due to market uncertainty.

With the next financial statement from the UK Government not due until November 23, the current plans to cut tax for high earners, scrap the rise in corporation tax and lift the cap on banker’s bonuses, have caused outrage.

But, across the pond, US banking chief Bostic said that there are concerns the UK’s plans could have a detrimental impact on the European economy, which in turn would affect the US’s.

Speaking on the Future of Work: The Challenge of Economic Inequality podcast from the Washington Post, David J Lynch asked Bostic if greater instability emanating from the UK “increases the odds of a global recession?"

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Bostic replied: “Well, I think it doesn't help it. You know, it would take international modellers to really try to quantify how much.

“But, you know, one of the things that we know as a basic tenet of economics is that more uncertainty leads to less engagement for consumers and businesses, and less engagement in an already tenuous environment is not going to be positive.

“So it is a concern. It's something that me and my team and all of us here in the Federal Reserve will be watching closely to make sure that we understand the implications of this development.”

It comes as hundreds of mortgage deals vanished from the market in recent days of economic turmoil in the UK.