New UK finance minister races to calm markets with quick reset
By Julia Horowitz, CNN BusinessUpdated: Mon, 17 Oct 2022 08:57:31 GMTSource: CNN BusinessBritain's new finance minister, just days into the job, will rush out details of a revised tax and spendin
By Julia Horowitz, CNN BusinessUpdated: Mon, 17 Oct 2022 08:57:31 GMT
Source: CNN Business
Britain's new finance minister, just days into the job, will rush out details of a revised tax and spending plan on Monday in a frantic effort to control jittery markets.
Jeremy Hunt will deliver a statement later Monday on how the United Kingdom intends to put public finances on a sustainable path, the UK Treasury said. He hadn't been expected to make an announcement until the end of the month.
The move helped avert a panicked sell-off in markets early Monday. UK government bond prices rose and the pound climbed 0.8% to $1.126.
But investors remain on edge. They weren't satisfied on Friday after Prime Minister Liz Truss fired Kwasi Kwarteng, her previous finance minister, and reinstated a big tax hike on corporations.
While Hunt's policy announcement could deliver a short term "relief rally," significant volatility is likely to persist, said Francesco Pesole, a strategist at ING.
The Treasury said that Hunt met with the governor of the Bank of England and the head of the Debt Management Office on Sunday night to brief them on his plans. The finance minister's full medium-term budget will still be delivered on October 31, together with a review by the UK's fiscal watchdog, the Office for Budget Responsibility.
Truss faces serious questions about whether she can hold on to her job after financial markets rejected her controversial economic package, which aimed to boost growth by slashing taxes and ramping up borrowing.
Her government has come under huge pressure from investors and other Conservative Party members since the effort was unveiled just three weeks ago. While Truss has walked back many of the measures, including a plan to cut the income tax rate for top earners, it's failed to restore confidence.
Over the weekend, US President Joe Biden said he thought Truss' trickle-down economic plan "was a mistake."
"I disagree with the policy," he said, adding that it was "up to Great Britain to make that judgment."
Investors are also keeping a close eye on the bond market Monday after the Bank of England on Friday ended its £65 billion emergency purchase program, which was intended to temporarily help pension funds hit hard by the market tumult.
While the central bank ultimately bought under £20 billion in government debt, the intervention -- announced on September 28 -- help provide some reassurance as the bond market churned.
The Bank of England said Monday that the operations "enabled a significant increase in the resilience of the sector."
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