The British pound plunged to a record low against the dollar on Monday as traders grow increasingly fearful of a deep UK recession after new finance minister Kwasi Kwarteng unveiled a controversial tax-cutting mini-budget.

The pound sterling plunged nearly 5 percent at one point to $1.0327, breaking below 1985 lows as confidence in Britain's economic management and assets evaporated. 

Even after stumbling back to $1.05, the currency is down 7 percent in two sessions.

Investors began dumping the pound on Friday after Kwarteng, who was put in place by Liz Truss after she became prime minister earlier this month, unveiled plans to slash taxes in a bid to kickstart the ailing British economy.

And the selling continued on Monday after he said he intended to unveil further reductions, despite his budget causing ructions on London's markets, with the FTSE 100 losing around 2 percent.

British consumer confidence slid this month to its lowest level since records began in the mid-1970s, underlining the precarious state of Britain's economy. The consumer confidence index from market research firm GfK fell to -49 in September from -44 in August.

"Consumers are buckling under the pressure of the UK's growing cost-of-living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments," said Joe Staton, client strategy director at GfK.

Kwarteng's plan 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, which is the theory that benefits for corporations and the wealthy will trickle down and eventually benefit everyone.

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

(Sources: AFP, Reuters with edits)