UK’s Truss sticks to tax cuts as she breaks silence after market rout

  • Truss says government won’t change course on UK policy
  • New poll gives opposition Labor a 33 point lead
  • Investors warn of loss of trust in government
  • Kwarteng says the mini budget was ‘absolutely essential’
  • Yields on British government bonds and the rise of the pound sterling

LONDON, Sept 29 (Reuters) – British Prime Minister Liz Truss said on Thursday she would stick to her controversial plan to boost economic growth, breaking her silence after nearly a week of chaos in financial markets triggered by government pressure for huge tax cuts.

A day after the Bank of England resumed bond purchases as an emergency measure to protect pension funds from a partial collapse, Truss blamed the upheaval on the Russian invasion of Ukraine, which caused a spike in inflation around the world.

“We’ve had to take urgent action to grow our economy, to get Britain moving and also to deal with inflation, and of course that means making controversial and difficult decisions,” she told BBC radio.

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“But I’m ready to do it as prime minister because what’s important to me is that we get our economy moving.”

Truss, the 47-year-old former British foreign secretary, took office on September 6 after winning the leadership race for the ruling Conservative Party, becoming the fourth prime minister in six turbulent years in British politics. .

She defeated former finance minister Rishi Sunak by promising to end ‘Treasury orthodoxy’ with a new economic policy that would cut taxes and regulation, funded by vast government borrowing to lift the economy out of the woods. years of stagnant growth.

She dismissed Sunak’s warnings that his plans posed a threat to Britain’s economic position in the world as “negative and declinist language”.

But his budget plan, presented by Finance Minister Kwasi Kwarteng on Friday, sparked a crisis of confidence in the government, hammering the value of the pound and government bond prices and shaking global markets.

Asked if the so-called mini-budget had been a major economic disaster, Kwarteng told reporters the government was focused on economic growth.

“The mini-budget was absolutely essential to re-ignite the growth conversation and focus us on delivering much better growth outcomes,” he said during a visit to a local northern business. England.

Huw Pill, the Bank of England’s chief economist, said on Thursday there was “undoubtedly” a UK-specific component to the adverse market moves, contrary to Truss’ view that they reflected global factors rather than its budget plans.

Meanwhile, a new YouGov poll has shown opposition Labor to a record 33 point lead over the Truss Tories. The voting intention poll taken on Wednesday and Thursday showed 54% support for Labor and 21% for the Conservatives.

Ken Griffin, the US billionaire founder of Citadel Securities, one of the world’s biggest market-making firms, said he was worried about the damage to Britain’s reputation.

“This is the first time we’ve seen a large, developed market in a very long time lose investor confidence,” he said.


Truss said his government would not change course.

After announcing £45billion in unfunded tax cuts, she said she would set out reforms in the coming weeks on everything from childcare fees to immigration, planning and financial regulation. A fuller budget statement on November 23 will detail the cost of borrowing and debt reduction measures.

Britain’s Prime Minister Liz Truss walks outside Downing Street in London, Britain September 23, 2022. REUTERS/Maja Smiejkowska/

With borrowing costs high and markets volatile, investors and economists said they couldn’t wait another eight weeks for more details.

A committee of UK parliament lawmakers has urged Kwarteng to deliver the November 23 statement which will include new forecasts from the country’s fiscal watchdog. Read more

In addition to the risk to pension funds, soaring borrowing costs have led to the withdrawal of cheaper mortgage offers and a spike in corporate loan rates.

The BoE’s intervention had an immediate impact by sending bond yields sharply lower on Wednesday, but investors still see the central bank raising its key rate by 1.25 percentage points to 3.50% on November 3, the date of his next scheduled announcement.

This rate is expected to rise further to 4.50% in December and nearly 6.00% in June, levels that would likely affect house prices and offset any gains from an announced reduction in real estate transaction taxes. last week.

Most economists expect a less severe pace of rate hikes.

“It’s the right plan,” Truss told the BBC. When asked if it was time to back down, she replied, “No, it’s not.”

Yields on British government bonds rose moderately on Thursday, after plunging a day earlier following the BoE’s decision to temporarily buy long-term debt and halt a selloff that threatened the country’s pension funds. country.

The pound has gained almost 2% against the dollar to break above $1.10, leaving its fall in September to just under 5% and its year-to-date decline of around 18%.

Simon Wolfson, the head of major British retailer Next (NXT.L), warned the fall would create a second cost-of-living crisis in Britain after soaring energy costs. He lowered the group’s forecast after a slowdown in August.


Investors, businesses and consumers are now waiting for the government to announce more details on how it plans to accelerate the growth of the economy.

“Every day, every week, every month, the government will now be criticized by markets and businesses for how seriously they take growth and their fiscal responsibility to pay down debt,” said Tony Danker, chief executive of the Confederation of British Industry. , said Wednesday evening.

Former BoE Governor Mark Carney also criticized the plan, saying the release of a “partial budget”, without the scrutiny of the Independent Office for Budget Accountability, had confused investors.

Kwarteng and Truss must now try to calm the nerves of the Conservative Party, which is due to start its annual conference on Sunday.

“There is no confidence in the Truss government right now,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The problem isn’t the budget spending per se, the problem is people just don’t trust what she’s doing.”

“We just avoided a bad sovereign debt crisis in the UK because the Bank of England radically changed its plans and stepped in.”

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Written by Kate Holton and William Schomberg; Additional reporting by David Milliken, Kylie MacLellan, Paul Sandle, Elizabeth Piper, Sachin Ravikumar and James Davey in London, and Bansari Mayur Kamdar in Bangalore; Editing by Catherine Evans, Alex Richardson, Toby Chopra and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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