Pound tanking, massive tax cuts and talk of emergency hikes. Here's what's going on in the UK

cnbc.com:

LONDON – The first fiscal policy announcement from new British Prime Minister Liz Truss's government has been met with one of the most pronounced market sell-offs in recent history.

The British pound hit an all-time low against the dollar in the early hours of Monday morning, dropping below $1.04, while the U.K. 10-year gilt yield rose to its highest level since 2008, as disarray continued following Finance Minister Kwasi Kwarteng's «mini-budget» on Friday.

Jim O'Neill, former Goldman Sachs Asset Management chairman and a former U.K. Treasury minister, said the pound's fall shouldn't be misinterpreted as dollar strength.

«It is a consequence of an extremely risky budget by the new chancellor and a rather timid Bank of England that, so far, has only raised rates reluctantly despite all the clear pressures,» he told CNBC Monday.

The announcement Friday featured a volume of tax cuts not seen in Britain since 1972 and an unabashed return to the «trickle-down economics» promoted by the likes of Ronald Reagan and Margaret Thatcher. The radical policy moves set the U.K. at odds with most major global economies against a backdrop of sky-high inflation and a cost-of-living crisis.

The fiscal package – which includes around £45 billion in tax cuts and £60 billion in energy support to households and businesses over the next six months – will be funded by borrowing, at a time when the Bank of England plans to sell £80 billion in gilts over the coming year in order to scale back its balance sheet.

The rise in 10-year gilt yields above 4% could suggest the market expects that the Bank will need to raise interest rates more aggressively in order to contain inflation. The yield on 10-year gilts has risen 131 basis points so far in