The Bank of England “will not hesitate” to raise interest rates amid market turmoil
The International Monetary Fund’s warning over Liz Truss and Kwasi Kwarteng’s tax cuts for the rich is “very serious” and shows “what a mess the government has made of the economy”, Labour’s Sir Keir Starmer said while the pound fell in Asian trade.
In a rare intervention, the IMF took aim at the government, warning that “large and untargeted tax packages” would “likely increase inequality” in Britain, after the chancellor’s mini-budget on Friday sent the pound tumbling sterling and bonds at a historic level. low yields and gilts shoot up, reflecting the cost of borrowing.
“Given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this time, as it is important that fiscal policy does not operate cross-cuttingly with monetary policy,” a spokesman said of the IMF.
The pound then fell below $1.064 on Wednesday morning, still well above a record low of $1.03 at the start of the week, before climbing back towards $1.08 relatively stable observed during most of Tuesday.
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Analysts warn the mini-budget carries lasting damage to the UK’s credit rating
Analysts have warned that Kwasi Kwarteng’s mini-budget risks doing lasting damage to the UK’s credit rating.
“Large unfunded tax cuts are credit negative,” Moody’s Investors Service said in a statement reported by Bloomberg.
The credit rating agency warned that the chancellor’s mini-budget “will lead to structurally higher deficits amid rising borrowing costs, weaker growth prospects and acute public spending pressure from the pandemic and a decade of austerity”.
A “sustained confidence shock arising from market concerns about the credibility of the government’s fiscal strategy” could also “permanently weaken the affordability of UK debt”, Moody’s warned.
Andy Gregory 28 September 2022 08:56
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The Bank of England’s interest rate hike could cause a ‘perfect storm’, says the big Tory
Britain could find itself in “the perfect storm” if the Bank of England raises interest rates, a senior Conservative has said, warning he does not want to see another financial crash.
“I think there are some genuine concerns that have been voiced and will continue to be voiced. I don’t think it’s entirely surprising. I also don’t think it’s surprising that a Conservative chancellor and prime minister would bring in a Conservative budget,” said Sir Roger Gale on Good Morning Britain.
“Sorry, we can’t call it budget, but that’s effectively what it was. And there’s a lot of good in it. It’s brave, and also very high risk. And it’s the high risk that causes concern.”
He added: “I know enough about economics to understand that markets don’t like things they don’t expect and aren’t quite sure how to react to, and I don’t think we should make too much of that. . The bad news is that now the pound is rising again because the markets think the bank will raise interest rates.
“And if that happens, we could have the perfect storm. Sadly, I’m old enough to remember the last financial crash, when … people came into my practice in tears because they were losing homes and businesses. It wasn’t a beautiful show, and I don’t want it to happen again.”
Andy Gregory September 28, 2022 8:44 am
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Truss and Kwarteng ‘blinded by ideology’, say Lib Dems
Liz Truss and Kwasi Kwarteng are “totally blinded by ideology”, the Liberal Democrat Treasury spokesman has claimed.
Arguing that parliament, currently in conference recess, should be adjourned to discuss the market turmoil, Sarah Olney said: “Truss and Kwarteng have been in government for three weeks and the IMF has already been forced to issue a statement about their economic imprudence.politics.
“Both are completely blinded by ideology, which is causing millions across the UK to suffer. We need to recall parliament to fix this mess.”
Andy Gregory September 28, 2022 8:33 am
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I’m closer to Blair than Corbyn, says Starmer
Sir Keir Starmer said the Labor Party under his leadership was closer to Sir Tony Blair’s than Jeremy Corbyn’s.
He said he had “no regrets” about serving in Corbyn’s shadow cabinet but had to “pick up the party from the cloth” after taking the helm.
Asked on Times Radio if he was comfortable saying Labor was closer to Blair, Sir Keir said: “I certainly hope so because Tony Blair won three elections and I want us to win the next election.”
Sir Keir also indicated that he will not be bound by a Labor conference vote in favor of proportional representation (RP) when he draws up Labour’s election manifesto.
“The manifesto will be something that I will draw up with my team according to party rules,” he told BBC Radio 5 Live.
Adam Forrest 28 September 2022 08:29
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Kwarteng to meet with investment banks to allay fears
Kwasi Kwarteng will today intensify efforts to reassure the City Council about its economic plans, in meetings with investment banks.
The chancellor is expected to stress the importance of reforms ministers will set out in the coming weeks to boost growth, including his “Big Bang 2.0” measures to further deregulate financial markets.
Andy Gregory 28 September 2022 08:18
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UK faces ‘very dire’ situation after government’s ‘unforced error’, warns Larry Summers
Former US Treasury Secretary Larry Summers has warned that the UK faces a “very dire” combination of factors after the government’s “unforced error”.
“I can’t honestly remember a time when a set of policy announcements from a G7 country got such a negative response from both markets and economic experts,” Harvard’s president emeritus told BBC Newsnight.
“The combination that Britain faces is very ominous. I think the kind of warning that the UK has received today from the IMF is the kind of warning that comes much more often to emerging markets with new governments than in a country like the United Kingdom.”
Summers added that the response by the markets and the IMF is the result of a “number of unforced errors” by the UK.
My colleague Thomas Kingsley has more in this report on the fall in the pound this morning:
Pound falls after IMF urges Kwarteng to ‘reassess’ tax cuts
Sterling is trading near $1.07 this morning after falling from $1.08 on Tuesday
Andy Gregory September 28, 2022 8:10 am
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Starmer says her own mortgage payments have increased
Sir Keir Starmer has said his own variable rate mortgage payments have risen by “a few hundred pounds” a month.
Saying he was “not asking for a special case”, he told LBC: “A lot of people with mortgages will be really worried about what’s happening because they know what this means for their budgets – prices are going up.”
“We all look at the graph and see that the pound is falling, but it is not an abstract graph. This is reflected in people’s mortgages etc. And people are very, very worried this morning.”
Adam Forrest September 28, 2022 8:03 am
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The IMF “should be looking ahead”, says Truss who supports the Tory MP
A Tory MP and prominent supporter of Liz Truss has sought to dismiss concerns raised by the International Monetary Fund about the government’s economic policy.
Sir John Redwood told Sky News: “The IMF was very wrong, as was the Bank of England, about the inflation they are now rightly worried about.
“We and other central banks were not warned in the run-up to the hyperinflation that 2021 monetary policies were too loose, interest rates too low, and money printing was getting out of hand. It’s a too bad they didn’t warn you. Now they should look ahead.
“We have to fight the recession. Of course, we have to be prudent with the finances. But the truth is that if the austerity policies have their way and we have a great recession, the debt is not going to go down, the debt is going to will shoot”.
Sir John offered a strong defense of Mrs Truss’s tax cut plan, while delivering a strong message to the Bank of England against further intervention on interest rates: “My message today is that the the government is right to see the main threat for the year ahead is recession, not inflation, because the good news is that all the forecasters are saying that inflation will come down a lot next year, and the sooner the better “.
He said the Bank of England “should be very cautious about taking further action because they have moved from a monetary policy that was blatantly too loose and very inflationary to one that is now very tight,” adding : “I think it is tight enough to do the job we have to do, which is to reduce inflation”.
Andy Gregory 28 September 2022 08:00
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Pound falls slightly after IMF warning
The pound fell in early trade in Asian markets this morning after the International Monetary Fund criticized the government’s economic policy, falling 0.4% to $1.0693.
It came after a slight 0.4% rise in Tuesday’s session, after falling to an all-time low of $1.0327 earlier in the week.
Although it held around $1.08 as markets calmed somewhat on Tuesday, sterling briefly fell below $1.064 on Wednesday morning following the IMF intervention, before returning to north to $1.069.
Andy Gregory September 28, 2022 7:48 am
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IMF warning is ‘very serious’ and shows ‘what a mess the government has made’, says Keir Starmer
The International Monetary Fund’s rare condemnation of Liz Truss and Kwasi Kwarteng’s economic policy is “very serious” and “shows the mess the government has made of the economy”, Sir Keir Starmer has warned.
Speaking to LBC as his party’s conference draws to a close today, the Labor leader said: “This is self-inflicted…