The value of the pound against the dollar has surged this afternoon amid rumours the government is about to row back on policies announced in last month’s mini- budget.

It jumped 2.1% versus the dollar to almost $1.13 – moving towards its pre-budget levels.

The cost of borrowing for the government also fell, with the benchmark 10-year gilt yield dropping by almost 0.4%.

Markets were sent into turmoil after Chancellor Kwasi Kwarteng set out his plans on September 23, saying there would be £43bn of tax cuts mainly funded by borrowing – including scrapping the top rate of tax for the highest earners altogether.

He already reversed the decision on the top rate of tax, but more U-turns are expected, saying on October 3: ‘It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country.

‘As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened. This will allow us to focus on delivering the major parts of our growth package.’

Earlier today, Liz Truss still ruled out more U-turns on her mini-budget and remained committed to the timeframe of her tax cuts, Downing Street has said.

Asked if the Prime Minister promises there will be no further reversals, her official spokesperson said: ‘Yes, as I said to a number of questions on this yesterday, and the position has not changed from what I set out to you all then.’

Pressed on whether she is committed to the timeframes set out for measures in the mini-budget, the official said: ‘Yes, and obviously as you know the date for the medium-term fiscal plan has been brought forward.’

But a sense of relief is still sweeping financial markets, with anticipation that the government will be forced into a humiliating climbdown today.

It comes amid questions about the PM’s leadership of the Conservatives after little more than a month in the job.

At a meeting of backbench Tory MPs yesterday, Commons Education Committee chairman Robert Halfon told Ms Truss she had ‘trashed the last 10 years of workers’ Conservatism’.

Backbencher John Baron told BBC Radio 4’s World at One programme: ‘The mood, generally, is one of caution and concern.

‘For me, it’s about the lack of compassionate conservatism, the breaking of the link between benefits and inflation during the cost-of-living crisis is wrong.

‘But the optics are also wrong when we’ve also been proposing a cut in the 45p rate of tax.

‘So, that together with a lack of reassurance to the markets when it came to the mini-budget, about the borrowing and the spending requirements and cuts too, you know, has all added to the general air of concern.’

Mr Baron suggested Ms Truss’s tax cuts can be saved in large part ‘provided we provide reassurance to the markets, for example, where are the spending cuts?’

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