George Osborne has insisted his Project Fear warnings about Brexit are already coming to pass - and warned that there will be tax rises and spending cuts.

The Chancellor said his dire predictions about the impact on the public finances 'have started to be borne out by events' such as a tumbling pound and markets - despite a slight rally this morning.

He also claimed there would 'absolutely' need to be austerity measures in the future - and denied it had been his job to have a contingency plan in place for Brexit.

'It is very clear that the country is going to be poorer,' he told BBC Radio 4's Today programme.

George Osborne, pictured in Downing Street this morning, said there would 'absolutely' need to be tax rises in the wake of the Brexit vote

'We are absolutely going to have to provide fiscal security to people, in other words we are going to have to show the country and the world that the country can live within its means.'

Asked if that meant tax rises and spending cuts, he said: 'Yes, absolutely. But that decision will come under a new prime minister - it's obviously not possible while the Conservative Party is having a leadership contest.'

Mr Osborne has accepted that his prominent role in the Remain campaign has ended his chances of a move to Number 10 and conceded that the pro-EU push 'did not get it all right'.

And he did not deny that he had been firmly opposed to the idea of having a referendum in the first place but lost the argument within the party.

'We had a big and lively debate about it,' he said, adding that he could 'see the logic'.

'There were pluses and minuses to having a referendum but I agreed with the collective decision.'

The markets rallied today after the pound dropped to a 31-year low against the US dollar and £40billion was wiped off the FTSE 100.

The FTSE 100 rose two per cent at the opening of trading today, moving into positive territory for the first time since the Brexit vote.

The gains come alongside a boost for sterling, which is up 0.4 per cent against the dollar at 1.32, coming after the pound hit its lowest level since 1985 yesterday.

However, experts dubbed the increases a 'dead cat bounce'.

Good news at last: George Osborne arrives in Downing Street today as the markets rallied for the first time since the Brexit vote

This is a recovery in share prices after a substantial fall, only caused by traders buying to cover their positions when the markets reach new lows.

Connor Campbell at Spreadex said: 'This may well be a dead cat bounce, but one imagines given the state they are in the global markets will welcome any respite they can.

'With little data on the cards this morning - not that investors would be paying much attention if there were - the post-Brexit fallout will continue to define the day's trading.'

Yesterday Britain was stripped of its gold-plated credit rating and the pound hit its lowest level against the dollar since 1985.

Savers and investors have seen the value of their nest eggs tumble since Britain voted to leave the EU.

The FTSE 100 index fell by 2.55 per cent while even bigger falls were seen in European markets.

Banking stocks also plunged as investors dumped shares over worries about a prospective cut in interest rates.

The sector has shrunk by £40billion since the referendum – £15billion since the weekend.

But it is hoped the pound's slide will boost exports, while government borrowing costs hit a record low – showing investors have faith in the UK. Ratings agency Standard & Poor's yesterday cut Britain's credit score from AAA to AA–, describing Brexit as 'a seminal event' that poses risks to the economy.

S&P had rated Britain at AAA since 1978, meaning it was as safe a bet as there can be for investors.

And rival agency Fitch further downgraded the UK, from AA+ to AA.

A ratings downgrade traditionally pushes up borrowing costs as investors worry lending to Britain is more risky.

Agency Moody's had previously dropped the UK from AAA over concerns on national debt and the strength of the economy.

But ratings agencies are not as influential as they once were following the financial crisis, in which they gave top-notch scores to toxic investments. Analysts said that, although markets were volatile, the outlook was not as bleak as it had been after the collapse of US investment bank Lehman Brothers in 2008 or the 2011 eurozone debt crisis.

Credit Suisse warned the UK may slip into recession in 2017. But in a report, the banking giant added: 'In our judgment, the UK's decision to leave the EU does not represent a Lehman Brothers-style systemic shock to the European or global financial system.'