- Truss says it won’t change the course of UK policy
- Bond markets calm down after BoE . intervention
- Investors warn of loss of confidence in government
LONDON, Sept. 29 (Reuters) – British Prime Minister Liz Truss said she would stick to her controversial plan to revive economic growth when she broke her silence on Thursday after nearly a week of chaos in the financial markets. of its massive tax cuts.
A day after the Bank of England resumed its bond purchases in an emergency measure to protect pension funds from a partial collapse, Truss blamed the Russian invasion of Ukraine that has fueled inflation around the world.
“We had to take urgent action to grow our economy, get Britain moving and also tackle inflation, and that of course means making controversial and difficult decisions,” she told BBC radio.
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“But I’m willing to do that as prime minister because what I think is important is that we get our economy moving.”
Truss, the 47-year-old former British Foreign Secretary, took office on 6 September after winning the ruling Conservative Party’s leadership contest, becoming the fourth prime minister in six turbulent years in British politics.
She defeated former Finance Minister Rishi Sunak by vowing she would end “treasury orthodoxy” with new economic policies that would reduce taxes and regulations, funded by massive government loans to pull the economy out of years of sluggish growth. .
She dismissed Sunak’s warnings that her plans posed a threat to Britain’s economic position in the world as “negative, declinistic language”.
But her budget plan, drafted Friday by Finance Minister Kwasi Kwarteng, caused a crisis of confidence in the government, sending the value of the pound and government bond prices skyrocketing and shocking global markets.
Ken Griffin, the American billionaire founder of Citadel Securities, one of the world’s largest market-making firms, said he was concerned about the damage to Britain’s reputation. “It’s the first time in a very long time that a major developed market has lost investor confidence,” he said.
UNFINANCED TAX REDUCTIONS
Truss said her government would not change course.
After identifying £45 billion in unfunded tax cuts, she said it would outline reforms in the coming weeks on everything from childcare costs to immigration, planning and financial regulation. A more complete tax review on November 23 will provide details on the cost of borrowing and measures to reduce debt.
Investors and economists have said they can’t wait another eight weeks for details with high borrowing costs and volatile markets. In addition to the risk to pension funds, the sharp rise in borrowing costs has led to the withdrawal of cheaper mortgage offers and a jump in lending rates for companies.
The BoE’s intervention had an immediate impact on the decline in bond yields on Wednesday, but investors still see the central bank raising interest rates by at least 1.25 percentage points to 3.5% on Nov. 3, the date of the next scheduled date. announcement.
Some are betting on an emergency hike before then, according to interest rate swap prices.
Rates continued to climb to 4.5% in December and 6% in June, levels likely to weigh on house prices and offset any gains from a cut in property transaction taxes announced last week.
Economists usually expect a slower pace of interest rate hikes.
“This is the right plan,” Truss told the BBC. When asked if it was time to change course, she replied, “No, it isn’t.”
UK government bond yields rose moderately on Thursday after plummeting the day before when the BoE decided to temporarily buy long-term debt and halt a government bond sell-off that threatened the country’s pension funds.
The British pound offset some previous losses to fall 0.5% against the dollar at $1.0797, bringing the September decline to nearly 7% and the decline so far to nearly 20%.
Simon Wolfson, the head of major UK retailer Next (NXT.L), warned the plunge would spark a second cost of living crisis in Britain after the surge in energy costs. He lowered the group’s forecasts after a delay in August.
CRITICS BY MARKETS
Investors, businesses and consumers are now waiting for the government to announce more details on how it plans to accelerate the economy, which will hold the key to solving Britain’s ever-growing public finances.
“Every day, every week, every month, the government is now being criticized by markets and companies for how serious they are about growth and their fiscal responsibility to repay debt,” said Tony Danker, director-general of the Confederation of British Industry. . said late Wednesday.
Former BoE governor Mark Carney also criticized the plan, saying the release of only a “partial budget,” without the accompanying scrutiny of the independent Office for Budget Responsibility, had made investors nervous.
“It’s important that (the budget) be subject to independent and, dare I say, expert scrutiny,” Carney said.
Kwarteng and Truss must now defend their strategy and try to calm the nerves in the Conservative Party, which begins its annual conference on Sunday.
“There is no confidence in the Truss administration at the moment,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The problem isn’t necessarily the fiscal spending, the problem is that people just don’t trust what she’s doing.
“We just avoided a bad sovereign debt crisis in the UK as the Bank of England drastically changed its plans and jumped in.”
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Written by William Schomberg and Kate Holton; Additional reporting by David Milliken, Kylie MacLellan, Paul Sandle, Elizabeth Piper and James Davey in London, and Bansari Mayur Kamdar in Bangalore; Editing by Catherine Evans and Alex Richardson
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