An economist and former interest rate-setter has hit out at the government’s “raging incompetence” as he questioned whether Liz Truss and Kwasi Kwarteng would survive the economic turmoil created by their mini-budget.

David “Danny” Blanchflower, who sat on the Bank of England’s monetary policy committee for three years, said the prime minister and chancellor’s “credibility is completely trashed” within days of taking office.

His outspoken comments followed the Tories unveiling a massive £45 billion tax cut funded by government borrowing on Friday – a move that saw the pound slump to a record low against the dollar by Monday.

The sell-off of sterling, as well as jitters across the financial markets, has led to fears the Bank is certain to raise interest rates dramatically to save the currency, which in turn is likely to spell bad news for homeowners.

Appearing on the Sarah-Jane Mee Show on Sky News, Blanchflower referenced Kwarteng’s plan to explain how he will get debt falling in a medium term fiscal plan to be published on November 23, as he said the uncosted government plans mean Truss and the chancellor “just don’t look credible”.

He added: “So the question is, if you if you’re the chancellor of the exchequer and what you’ve done is you’ve stood up and you crashed the markets – you’ve crashed the bond market, you’ve crashed the foreign exchange market, the stock market dropped, the housing market’s in trouble – and you created a giant recession as the Bank of England has to raise rates … your credibility is completely trashed.

“And what’s the prime minister going to say – well, at the moment she appears to be hiding – but the questions journalists like you and (Sky News journalists) Ian King and Ed Conway and others are going ask is, what are you going to do, it’s all completely failed, hasn’t it? They told you it was going to fail, and it has now, what are you going to do?

“And obviously the question then is, politically, is she going to survive the month? Does she get to – and does he get to – this statement in two months time, because presumably politically they’ve created a disaster. And there’s even an issue: could you get to get this through the House of Commons? Unclear.

“I have never seen anything like this. I’ve been an economist for 50 years. I went through the great recession, and I have never seen such a raging incompetence ever.”

After two days of big changes, the pound settled down on Tuesday, trading at around 1.08 dollars for most of the day, deviating only briefly with a two cent drop.

London’s top stock index, the FTSE 100, was also subdued for most of the day.

The FTSE closed the day down 0.5% on Tuesday afternoon while gilt yields, reflecting the cost of government borrowing, rose 1.6%, more than a quarter higher than just a week ago.

But with some analysts predicting the base rate – currently standing at 2.25% – will have to rise to as high as 6% next year, some lenders began withdrawing some mortgages amid uncertainty over how far they will rise.