Britain’s new finance minister announced a full withdrawal from the UK government’s tax and spending plans on Monday in a frantic attempt to Control the chaotic market.
In just four business days, Jeremy Hunt said he would reverse almost every tax measure announced three weeks ago, including the proposed basic income tax cut from April 2023. incredible reverse would take in £32 billion ($36 million), he said.
The move represents a complete reversal of Prime Minister Liz Truss’ tax cut plan and leaves her in a dangerous political position.
“No government can control the market, but every government can provide certainty about the sustainability of public finances,” Mr. Hunt said. “The UK will always pay its way.”
The announcement helped ease the alarm in financial markets on Monday. UK government bond prices rose and the pound rose 1% to nearly $1.13.
However, investors are still in a competitive position. Francesco Pesole, strategist at ING, said: While Hunt’s policy announcement could provide a short-term “bearish”, significant volatility is likely to continue.
On Friday, Truss fired Kwasi Kwarteng, her predecessor finance minister, and reinstated a large tax increase on corporations. But these moves did not satisfy investors worried about the state of the government’s finances.
The Treasury said that Hunt met with the governor of the Bank of England and the head of the Debt Management Office on Sunday night to brief them on his plans and that he would share more information with Parliament on Sunday. end of Monday.
The Treasury Secretary’s full medium-term budget will still be delivered on October 31, subject to review by the UK’s fiscal watchdog, the Office for Budget Responsibility.
Truss faces serious questions about whether she can continue her job after financial markets rejected her controversial economic package to boost growth with tax cuts. and increased debt.
Her government has come under tremendous pressure from investors and other Conservative Party members since the effort was announced in late September. While Truss has backed away from many measures, including including including a plan to cut income tax rates for the top earners, but can’t restore confidence.
Over the weekend, US President Joe Biden said he thought Truss’ mitigation plan “was a mistake”.
“I disagree with this policy,” he said, adding that “it is up to the UK to make that ruling”.
Investors kept a close eye on the bond market on Monday after the Bank of England on Friday ended a £65 billion emergency purchase program aimed at temporarily helping pension funds. affected by the market turmoil.
While the central bank ended up buying less than £20 billion in government debt, the intervention – announced on September 28 – helps provide some reassurance as the bond market churns.
The Bank of England said on Monday that the operations “have significantly increased the resilience of the industry.”