© Reuters Bank of England Governor Smiles Truss Reversal Tax Cut Adds Another Real Hammer?
Financial Associated Press, October 14 (Malan publisher) A message Thursday said the UK government is discussing changes to Prime Minister Truss’s tax cut plan, which could reduce the size of the tax cuts again.
As soon as the news broke, the UK financial market was rocked: the pound rose more than 1.48% against the dollar, the 10-year UK government bond yield fell by around 20 basis points and the yield on the 30-year government bond it fell by about 45 basis points, reaching an all-time high since 7 October. the lowest level. The UK stock market also rose in the short term, but then the market fell again due to US CPI data and recovered losses only in late trading and closed 0.35% higher.
Even more surprising, British Chancellor of the Exchequer Kwaten will shorten his trip to the United States and return to London later Thursday to continue his involvement in the development of the government’s long-term fiscal plan, according to a Treasury spokesman.
On Thursday, Bank of England Governor Bailey arrived in Washington for an International Monetary Fund meeting. He didn’t answer, but smiled when reporters asked if abandoning the massive tax cut plan would end weeks of turmoil in the UK financial markets.
State Street’s head of macro strategy for Europe, the Middle East and Africa, Tim Graf, explained that Bailey’s pressure on politics seemed to be working.
Central bank vs government struggle The Bank of England continued its buyback on Thursday, buying a record £ 4.8bn of assets and doubling bond purchases from Tuesday. But in line with the central bank’s previous pledge, the Bank of England will close a total of £ 65bn of emergency bond purchases this Friday.
Previously, traders expected the Bank of England to have no choice but to extend its bond buying program to maintain confidence in financial markets, which would be detrimental to the credibility of the central bank and Bailey.
But looking at it now, Bailey’s move is higher and Truss and Kwarten seem to give in first.
According to sources, no new changes will arrive until the weekend, but any announcements are likely to be made by October 31st. Negotiations are ongoing, so there is no precise timing.
Early media reports have said that Truss could cancel his promise to keep the corporate tax rate unchanged next year, and instead inherit former Prime Minister Johnson’s policy and raise the relevant tax rate.
Earlier this week, the Institute for Fiscal Studies (IFS), a British think tank, estimated that the UK government would need to save £ 60 billion to stabilize the debt ratio. The corporate tax hike under Johnson’s plan could generate an additional £ 18bn in revenue, while budget cuts could save another £ 5bn.
External criticism At this week’s IMF meeting, Bailey and Kwarten were in a different situation.
IMF Chief Executive Kristalina Georgieva praised the Bank of England’s support for bond purchases, saying it was appropriate and addressed financial stability risks.
He also veiled sarcasm that politics needed coherence and clear communication, with the aim of blaming Truss for the aggression and recklessness of his £ 45 billion tax cut.
Mark Carney, the former Governor of the Bank of England, also criticized the fact that in this risky environment different from the past, mistakes will be heavily punished, the system is very important and the guidelines are very important. He believes that Truss’s experimental plan is lacking in detail and cannot be recognized by the market.
Rabobank analyst Richard McGuire said, “We hope the situation calms down, but there has to be a substantial follow-up.
Market pressure has eased for now on bets on a turnaround in the tax cut plan. But the Bank of England will stop buying bonds starting next Monday and investors are worried that if the government doesn’t have a clear fiscal and spending policy announcement by then, the market could take another hit.
