Why is the pound falling? What does it mean for me?

The pound has dropped to its lowest level against the dollar since decimalisation was introduced in 1971.

Sterling sunk to just $1.0327, below even the 1985 baseline of $1.0545, sparking panic in some markets.

But some members of the public are unsure why this is causing such an effect and why it matters what the American currency stands at compared to the pound.

Here MailOnline looks at some of the key questions and what it could mean for you: 

The pound is down eight per cent since Liz Truss was elected PM three weeks ago and down approaching 25 per cent since that start of the year. It is a similar story for the euro

As markets opened the pound tanked towards parity with the dollar before rising again to around $1.06

The Statue of Liberty over the scene of New York cityscape a popular destination from British tourists which will now be more expensive

America tourists could be attracted to the UK because their dollars will go so much further

Why has the pound dropped?

The pound has plummeted in direct reaction to Chancellor Kwasi Kwarteng’s so-called mini-budget on Friday, which announced the biggest tax cuts in the past 50 years.

Why has it got worse over the weekend?

While there was an initial fall after the chancellor’s announcement, sterling started to rally slightly. However, Mr Kwarteng’s comments over the weekend saying more tax cuts were coming saw further falls.

Why does it matter – could things get worse?

It is widely expected that if the pound does not rally, the Bank of England will increase the interest rate, meaning debt will become more expensive, hitting many things including mortgages. Simon Jones, CEO of financial comparison site InvestingReviews.co.uk, said: ‘Sterling’s slump is fuelling speculation that the Bank of England may need to take action by hiking interest rates even before rate-setters hold their next scheduled meeting in November. Remember, more than two million homeowners on variable rate mortgages are already reeling following seven successive increases in the base rate since last December. Millions more on fixed rate deals will find their repayments have skyrocketed when it comes time for them to re-mortgage.’ 

Will the plunging pound impact my travel?

Yes, as it has dropped so dramatically compared to the US dollar, it will hit hard-working families in the pocket, particularly if they are travelling abroad to America. Samuel Fuller, Director of Financial Markets Online, said: ‘Trips to Disney World in the United States just got more expensive. This year £1,000 exchanged into US dollars will buy you around $250 less than last year. But the bad news doesn’t end there. Dozens of world currencies are pegged to the US dollar and that has ramifications for Brits planning holidays in other hotspots too. Countries peg their currencies to the dollar to make their economies more stable. It means that when the dollar strengthens against the pound, these other pegged currencies can strengthen too. Travellers planning trips to places like the Caribbean, Malaysia and Middle Eastern states like World Cup hosts Qatar will also see prices rise.’

British Chancellor of the Exchequer…