LONDON, Oct 18 (Reuters) – Prime Minister Liz Truss has apologized for threatening Britain’s economic stability after she was forced to scrap her economic agenda, with some Conservative lawmakers calling on her to resign.
Her apology came after her new finance minister, Jeremy Hunt, demolished the radical economic agenda she proposed less than a month ago, reversing her vast tax-cutting plans and marking instead a program of public spending cuts. “dazzling”.
Below is a snapshot of the related events, comments, and explanations:
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TRUSS U-TURN
* Truss said he regretted going “too far too fast” with his sweeping economic plan. His apology came after weeks of blaming markets and “global headwinds” for investors dumping the pound and government bonds.
* “I want to accept responsibility and apologize for the mistakes that have been made,” Truss told the BBC on Monday night.
* She said she would “stay put” and lead the Conservatives to the next election, but some of her lawmakers are calling on her to resign.
* James Heappey, minister for the armed forces, said Truss, his boss, could not afford to make any more mistakes. “To her credit, she acknowledged it and apologized,” he told Sky News.
MARKETS
* The Bank of England on Tuesday dismissed a report in the Financial Times that suggested it was likely to delay once again the long-planned start of its government bond sales.
The BoE was forced to intervene in the government bond market after Truss’s “mini-budget” on September 23 to prevent the collapse of pension funds.
* Tuesday’s BoE statement had a moderate impact on UK government bond prices, with the 10-year gilt yield GB10YT=RR rising 4-5 basis points as a result.
* The pound was down 0.7% on the day at $1.1277, having retreated from Monday’s 12-day high of $1.144 GBP=D3.
* Major UK stock indices hit their strongest levels in more than a week, buoyed by the government reversal. The blue chip FTSE 100 (.FTSE) gained 0.9% to hit its highest level since Oct. 10 and the country-focused FTSE 250 (.FTMC) rose 1.0% to a level not seen from October 5.
WHAT IS BEHIND THE CRISIS?
* The Bank of England was forced to buy emergency bonds to stem a sharp 2.1 trillion pound ($2.3 trillion) sell-off in the British government bond market that threatened to wreak havoc on the bond industry. pensions and increase the risks of recession.
* The liquidation began after then-new Finance Minister Kwasi Kwarteng’s tax cut announcement on September 23.
* After firing Kwarteng, a close friend and ally, on Friday, Truss announced that corporate tax would rise to 25% as his predecessor, Boris Johnson, had intended, reversing his earlier plan to freeze it at 19%. Kwarteng’s cut to the highest income tax rate had already been reversed.
* His replacement, Hunt, on Monday scrapped “almost all” of Truss and Kwarteng’s economic plan and scaled back their vast energy support plan, announced in September, in a historic U-turn to try to restore investor confidence.
* The BoE’s interventions have highlighted a growing segment of Britain’s pension sector: liability-driven investment.
* LDI helps pension funds use derivatives to “match” assets and liabilities to avoid payment shortfall risks, but soaring interest rates have prompted calls for emergency guarantees for those funds to cover derivatives.
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Compiled by Raissa Kasolowsky, Edited by Catherine Evans and Gareth Jones
Our standards: the Thomson Reuters Trust Principles.
