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- Truss will announce the energy support plan on Thursday
- The new prime minister rules out the unexpected tax on electricity companies
- Sterling falls to its lowest level since 1985 against the US dollar
- Kwarteng says the loan will be higher
- BoE says energy support could help cool inflation
LONDON, Sept 7 (Reuters) – Britain’s new prime minister, Liz Truss, on Wednesday prepared the final details of a plan to deal with rising energy bills, which looks likely to cool inflation, but adds more of 100 billion pounds ($115 billion) to the country’s loan. .
On his first day as UK leader after replacing Boris Johnson, Truss told parliament he would support businesses and households bracing for a recession expected to start later this year year.
Sterling fell to its lowest level against the U.S. dollar since 1985, partly due to investor concerns about the scale of debt Britain will have to sell to finance the energy support plan and tax cuts that Truss has also promised.
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A source familiar with the situation told Reuters that Truss was considering freezing energy bills in a plan that could cost up to £100 billion, a major U-turn from his rejection of “handouts” during the early stages of the Conservative Party leadership campaign.
Deutsche Bank said the energy price support and promised tax cuts could cost 179 billion pounds, or about half of Britain’s historic pandemic spending that has dealt a blow to the country’s public finances .
Truss dismissed demands from the opposition Labor Party to fund some of the spending by raising taxes on energy companies.
“I’m against a windfall tax. I think it’s not a wrong thing to put companies off investing in the UK,” Truss told lawmakers.
He must give details of the energy support plan to parliament on Thursday.
MORE LOANS
His Finance Minister Kwasi Kwarteng, also on his first full day on the job, said borrowing would be higher in the short term to support households and businesses and fund tax cuts. Read more
“We need to be decisive and do things differently. That means focusing relentlessly on how we unlock business investment and grow the size of the British economy, rather than how we redistribute what’s left,” he said to business leaders.
The pound sank to its lowest level against the dollar since 1985 at $1.1407 and was also down almost 1% against the euro.
While the fall in sterling could add to inflationary pressures in the economy, the planned price freeze plan would likely help ease cost-of-living pressure on consumers, which had emerged as the most severe in decades
The BoE’s chief economist, Huw Pill, said the plan could curb inflation, which topped 10% in July, although it was too early to say what the implications would be for the series of rate hikes. central bank interest rate. Read more
The BoE forecast in August that inflation would top 13%, and some economists have recently said it could top 20% if gas prices, boosted by Russia’s invasion of Ukraine, remain high.
Pill also said the BoE would not allow increased government spending to boost demand in the economy to the point where inflation rises.
However, investors cut their bets on a 75 basis point rate hike at the BoE’s next scheduled monetary policy announcement on September 15 to 60% from almost 80% early Wednesday. Two-year British government bond yields also fell.
Kwarteng met with BoE Governor Andrew Bailey and told him that “independence is really a cornerstone of how we see the management of the economy,” comments that appeared intended to reassure investors that the new government would not pressure the central bank.
At the start of the Conservative Party leadership campaign, Truss said the government should set a “clear direction of travel” for monetary policy, although he later took a less interventionist tone.
Kwarteng said he and Bailey would meet regularly, initially twice a week, to coordinate financial support.
($1 = 0.8721 pounds)
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Additional reports from the UK office Written by William Schomberg Editing by Hugh Lawson
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