Downing Street insisted there were no plans for further changes to the mini-budget package despite the financial markets responding to speculation that some of Prime Minister Liz Truss’s tax cuts will be ditched.

Sterling rose as reports circulated that talks are under way between No 10 and the Treasury, with a likely outcome that the original planned increase in corporation tax will be allowed to go ahead, shaving £18bn off the cuts.

Pressure has been mounting from the markets and backbench Tory MPs for a reversal of the unfunded tax package to bring stability to the markets and restore confidence in the government.

The managing director of the International Monetary Fund Kristalina Georgieva, told a press conference in Washington: “Our message to everybody, not just the UK, is that at this time, fiscal policy should not undermine monetary policy.

However, Chancellor Kwasi Kwarteng told a fringe meeting at the event: “Our position hasn’t changed. I will come up with the medium-term fiscal plan on the 31 October, as I said earlier in the week, and there will be more detail then.”

Business Secretary Jacob Rees-Mogg has blamed the Bank of England for the turmoil in the value of sterling and the rising cost of Government borrowing, while former Tory leader Sir Iain Duncan Smith said Governor Andrew Bailey’s handling of the situation had been “stupid”.

The pound jumped 0.9% against the dollar to trade at $1.12.

The FTSE 100 managed to eke out a gain at the end of the day, closing 24.12 points higher at 6,850.27.

US inflation tops forecast

US headline CPI inflation rose 8.2% year-on-year in September (versus consensus expectations of 8.1%), compared to 8.3% in August. 

Rob Clarry, Investment Strategist at UK wealth manager Evelyn Partners, says: “Today’s inflation report surprised to the upside, derailing hopes for a Fed pivot in the near-term.

“This comes as investors were praying that some initial signs that labour market conditions were easing could prompt a rethink by the Fed.”

Markets reacted significantly to the upside surprise, with the dollar strengthening to its highest level since September on a trade-weighted basis as speculators increased their bets that the Fed would increase rates by another 75bps hike at its meeting on 2 November.

Wall Street opened sharply lower on the news. The S&P 500 collapsed 2.7%, the tech-heavy Nasdaq fell 2.9% and Dow Jones dropped 1.65%.