Britain's new finance minister Kwasi Kwarteng unleashed historic tax cuts and huge increases in borrowing on Friday in an economic agenda that floored financial markets, sending sterling and British government bonds into freefall.

Kwarteng scrapped the country's top rate of income tax, canceled a planned rise in corporate taxes and for the first time put a price tag on the spending plans of Prime Minister Liz Truss, who wants to double Britain's rate of economic growth.

In total, the plans will require an extra 72 billion pounds of government borrowing over the next six months alone.

"In 25 years of analyzing budgets this must be the most dramatic, risky and unfounded mini-budget," said Caroline Le Jeune, head of tax at accountancy firm Blick Rothenberg. "Truss and her new government are taking a huge gamble."

Investors dumped short-dated British government bonds as fast as they could, with the cost of borrowing over five years seeing its biggest one-day rise since 1991, while the pound slumped more than 3 percent against the dollar to levels last seen 37 years ago.

Deutsche Bank said the central bank needed to make a big unscheduled interest rate hike as early as next week to calm markets and restore credibility.

Financial markets ramped up their expectations for interest rates to hit a peak of more than 5 percent midway through next year.

Kwarteng's announcement marked a step change in British financial policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s that critics have derided as a return to "trickle down" economics.

Read more: UK economy shows signs of strain from surging prices

(Source: Reuters with edits)