Jeremy Hunt arrives at his home in London after being appointed Chancellor of the Exchequer following the resignation of Kwasi Kwarteng. Date taken: Friday, October 14, 2022.
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LONDON – Sterling against dollar on Monday morning after the UK’s new Finance Secretary Jeremy Hunt announced that he would implement parts of his medium-term fiscal plan by the end of the day.
The pound rose about 0.8% to $1.1259 at around 9am London time, extending gains following a statement from the UK Treasury. Within an hour, the coin started to stabilize at $1.1170.
Yields on perennial British government bonds, known as backend bonds, have also fallen after an unprecedented sell-off prompted The Bank of England intervened and stabilize the market over a two-week period leading up to October 14. Yields move inversely with price.
The 10-year gilt yield fell 30 basis points to trade around 4.029% as of 9am London time. The 5-year sow yield decreased to 4.013% and the 2-year gilt decreased to 3.663%.
The market move followed a dramatic day in British politics on Friday, including major fiscal flips from Prime Minister Liz Truss and the sacking of Finance Minister Kwasi Kwarteng. He was quickly replaced by Hunt, who is expected to make a statement at 11 a.m. local time on Monday.
Monday’s announcements will arrive two weeks ahead of schedule. However, the full medium-term fiscal plan is still set to be released on October 31, accompanied by a forecast from the Independent Office for Budget Responsibility – something that was missing from the original small budget. announced on September 23. bond market.
Over the weekend Mr Hunt said his priority as finance minister was growth, like his predecessor, but he insisted it would be “underpinned by stability.”
“The drive to grow the economy is right – it means more people can get good jobs, new businesses can grow and we can ensure world-class public services But we’ve gone too far, too quickly,” Hunt said in a statement on Saturday.
In a research note on Monday morning, Kit Juckes from Société Générale said the message the UK government wants to send to markets is “nothing to see here, let’s continue with normal business.” usually yours.”
“I’m not sure it’s going to be quite as simple as that, but gilding output will drop, pound volatility will disappear and all we’ll be left with will be recession, austerity, high rates. and the lingering feeling that this pound crisis, moreover, he added.
Biden: The original plan was ‘a mistake’
International Monetary Fund issue a damning ruling on debt financing tax cuts after they were first announced at the end of September. UK chainsaw bond Strong sell-off and sterling hit a record low in the days that followed.
In a rare statement, the IMF said the plans put forward by Britain would “potentially increase inequality” and stressed that it “does not recommend large and untargeted fiscal packages at this time”. this point.”
US President Joe Biden over the weekend weighed in on the UK economy, describing Truss’ now-abandoned tax cut plan as a “mistake” and expressing concern that the monetary policy of countries around the world is not a good idea. other countries could harm the United States.
“I’m not the only one who thinks it was a mistake,” Biden said. “I don’t agree with this policy, but that’s up to the UK.”
Biden also said it was “predictable” that Truss would have to backtrack on the plans. He spoke to reporters at an ice cream parlor in Oregon on Saturday.
Pressure on the truss
On Friday, Truss announced partially reverse her so-called small budget, including the cancellation of a pledge to reverse a corporate tax increase. The company tax will now increase from 19% to 25% as originally planned by her predecessor Boris Johnson’s government.
“It’s clear that part of our small budget went further and faster than the market expected,” Truss said in a brief and hastily arranged news conference on Friday.
Market though not reassured by this move, and the pound fell about 1.1% against the dollar following Truss’ speech, trading at around $1.1205. Many political observers highlighted her poor performance on Friday, adding to pressure on Truss as several lawmakers called for her to step down, including members of her own party and party leader. opposite, Keir Starmer.
