UK moves budget forward in another attempt to calm markets

CNN Business

UK Finance Minister Kwasi Kwarteng will try to avoid fool investors for the second time when he released details on plans to tackle growing government debt and start economic growth On Halloween.

Kwarteng announced October 31 in a letter to the Treasury Department on Monday, dragging his midterm budget forward by more than three weeks in an effort to reassure jitters and markets. rebel side colleague. He also confirmed that the Office for Budget Responsibility (OBR), the independent fiscal watchdog, will publish its review of the budget on the same day.

Investors have been waiting for clarity on a revised date for the budget, originally set for November 23. It is widely expected to be released after the “small” budget of Kwarteng on September 23 crashed the pound and was sent. Shockwave through the financial markets with the promise of £45 billion ($49.8 billion) in unreimbursed tax cuts.

The reaction to the “growth plan” put forward by Kwarteng and Prime Minister Liz Truss was swift and brutal. Bond prices fell, sending borrowing costs soaring, causing turmoil in the mortgage market and pushing pension funds to the brink of insolvency. The Bank of England was forced to intervene urgently, pledging to buy up to 65 billion pounds ($72 billion) in government debt to prevent a market downturn.

Meanwhile, Standard & Poor’s and Fitch have downgraded the UK government’s credit rating from “stable” to “negative” due to concerns about a growing debt burden.

The pound has recovered all its losses but UK government bond yields are still higher than they were before the crash.

In a sign that markets are still fragile, the Bank of England said on Monday that it would double its daily bond-buying limit to £10 billion ($11 billion) over the course of the week. this and extending support to banks after October 14, when buying emergency bonds. the program ends.

Kwarteng’s budget revision date will give the Bank of England time to consider its impact on markets before meeting on Thursday. November 3 to set interest rates. The outlook for the UK economy has been bleak since the bank’s last meeting just over two weeks ago, which took place less than 24 hours before Kwarteng’s disastrous speech.

With inflation nearing 10% in the UK, bond yields rising and the Federal Reserve on a constant mission tame inflationBanks may need to raise interest rates a lot stronger when it meets again.

Lots of impact on the October 31 budget and OBR analysis of its impact on growth and government debt.

Paul Dales, chief UK economist at Capital Economics, told CNN Business: “For the prime minister to be able to recover, he needs to show that the numbers add up and the plans are worth it. trust.

Kwarteng was raped into an embarrassing retreat on his proposal to repeal the highest personal income tax rate – by far the most controversial element of the tax cut including the reduction of the home tax and the repeal of the plan. business tax increase.

But reversing tax cuts for the rich would only save the government about £2 billion ($2.2 billion), prompting investors to worry that debt will pivot to fund the rest. .

According to Dales, the government will need to show how it plans to “fill the financial hole” its policies have created.

– Mark Thompson and Anna Cooban contributed to this report.


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