British Prime Minister Liz Truss has fired Finance Minister Kwasi Kwarteng and scrapped a large part of her discredited economic strategy in a desperate bid to save her month-old premiership.
At a Downing Street press conference, Truss said she was scrapping plans to scrap a rise in business taxes after a revolt by investors worried about the impact and members of her own Conservative Party, which would save 18 billion pounds ($20 billion). mounting government debts amid decades of high inflation.
“I was right to act decisively to ensure our economic stability in the face of our challenges,” Truss said.
In a letter Posted on TwitterKwarteng said he agreed to step aside as requested by Truss, saying he believed his vision of “optimism, growth and change” was right and pledged his support.
Truss appointed former foreign secretary Jeremy Hunt to replace Kvarteng. He will become Britain’s fourth Chancellor of the Exchequer in a little over three months.
Just three weeks ago, Kwarteng delivered a “mini budget” promising huge tax cuts and rising debt in the hope of boosting UK economic growth. But sterling and government bonds collapsed on fears the plans would extra juice inflation at a time when prices are already rising at their fastest rate in nearly 40 years.
This prompted Bank of England To warn and declare a serious risk to the financial stability of the UK three separate interventions To calm the bond market collapse that has left some UK pension funds on the brink of default.
“It’s clear that parts of our mini budget are moving faster than the markets expected,” Truss told reporters.
The unfunded tax cuts have been roundly criticized by investors, the International Monetary Fund, credit rating agencies and members of Truss’ own party, some of whom are now reported. talks about eliminating it just five weeks into his premiership.
Kwarteng flew back from an IMF meeting in Washington overnight for discussions with Truss. His sacking on Friday means he has only been Chancellor of the Exchequer for just 38 days, the second shortest time on record.
Markets welcomed signs of a government rethink. The pound last traded at $1.12, with the yield on Britain’s 30-year government debt falling to 4.3% from a peak of more than 5% in recent days as bond prices rose. It hit a record low of $1.03 in September. 26.
Bryn Jones, head of fixed income at Rathbones, said his team bought longer-term British government debt – known as gilts – when it looked cheap earlier this week – a bet that is now paying off.
“The gold market is going well, but we will see what happens today and next week. Things can change quickly,” said the investment manager. “The volatility shows a huge lack of confidence here.”
In September, a £65 billion ($73.3 billion) emergency bond-buying program was launched by the Bank of England. 28, which ends on Friday, and has market participants worried that bonds could fall again if the government doesn’t quickly explain how it plans to pay for the tax cuts – pushing up mortgage interest rates and other borrowing costs.
Charlie Bean, a former deputy governor of the Bank of England, told CNN that Kwarteng’s removal was “probably a necessary step” but Truss will now have to unveil a new plan to tackle the national debt over the next three to five years. Otherwise, the British pound and UK government bonds could face further selling.
“What markets want to see is a consistent picture of how it all fits together,” Bean said. “If that doesn’t happen, you’ll see sterling and gold come under pressure again.”
Kvarteng was already there presented the full budget report for October. 31, more than three weeks ahead of schedule. But investors may not be willing to wait that long for reassurance about the state of Britain’s public finances.
The UK government has already done this abandoned plans to cut the top rate of income tax.
— Richard Quest, Zahid Mahmoud and Xiaofei Xu contributed to this article
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