The pound and UK government bond yields have rallied ahead of a key statement from the new chancellor tasked with resolving the fallout from the government’s disastrous mini-budget.
The British pound had fallen to an all-time low against the dollar in late September, after then Chancellor Kwasi Kwarteng introduced the largest program of tax cuts in 50 years.
Kwarteng, who was sacked on Friday after just 38 days in office, paid the price for a gift that cast doubt on the government’s economic credibility in financial markets.
The mini-budget led not only to a collapse in the value of the pound, but also caused borrowing costs to rise, forcing a unprecedented intervention by the Bank of England (BoE).
However, following the Prime Minister’s announcement on Friday that Kwarteng had been sacked and that corporate tax would rise to 25% from April the next year, instead of holding at 19%, there was a partial recovery in UK currency and bond yields.
Mr. Kwarteng’s replacement, Former Foreign and Health Secretary Jeremy Hunt Since then, he has vowed to regain the confidence of financial markets by fully accounting for the government’s tax and spending plans.
Sterling gained 1.1% to hit $1.1294 at one point on Monday and also advanced against the euro as the Treasury revealed Mr Hunt would meet key parts of a medium-term plan later Monday in support of “fiscal sustainability.”
The statement, released before UK financial markets opened, added that Hunt met with BoE Governor Andrew Bailey and the head of the Office of Debt Management on Sunday night to brief them on the plans.
They would be some selected announcements of the medium-term fiscal plan that will be revealed on October 31.
Bond markets also suggested an easing of recent pressure, given additional concerns in some quarters after the The BoE ended its emergency support for the gilt market on Friday. on Friday.
The bank issued its own statement before the opening to say that its operations, aimed at helping pension funds fight higher collateral demands, had enabled a “significant increase in the resilience of the sector”.
He reiterated that other liquidity options remained available, should they be needed, to ensure smooth funding.
Any increase in government borrowing costs, via an increase in gilt yields, would have reflected additional nervousness.
But there was a turn to the downside with UK 20- and 30-year yields falling just under 20 basis points in early trading.
But Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said other risk factors were also at play.
“New Chancellor Jeremy Hunt has the air of a problem-solving teacher hired to turn around a failing school and faces his first major test today with an emergency budget plan to calm financial markets.
“This is all part of his charm offensive to instill confidence in the government’s ability to be fiscally responsible, but behind it, rogue alumni are still plotting to oust the embattled leader,” he wrote.
Can Truss still be PM?
It reflects a renewed focus on whether Ms. Truss can stay on the job.
One Tory MP told Sky News: “The idea that the prime minister can make a scapegoat of her chancellor and move on is wishful thinking.
“This is his vision. He signed every detail and stood by it.”
The Conservative Party is now on its fifth chancellor in the last three years: Mr Hunt, Mr Kwarteng, Nadhim Zahaui, Rishi Sunak Y Sajid Javid.
The pound sinks to an all-time low against the dollar, while the prime minister and the chancellor defend the mini-budget
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