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Analysis – UK bond market crash puts London's big bang plans on fire

Hugh Jones

LONDON (Reuters) – Britain’s new prime minister, Liz Truss, has pledged to “unblock” the City of London in a bid to boost economic growth, but has been slashed by cuts A collapse in the bond market due to taxes will require her financial services “big bang” plan to shine.

Last month, when UK finance minister Kwasi Kwarteng unveiled plans to increase borrowing to lower taxes, markets were spooked, government bond yields soared and sterling fell to a record low against the dollar.

The Bank of England’s rare forced purchase of unlimited gilts to restore calm and avoid what some call a near “Lehman moment” of UK government bonds casts a layer on London’s financial district shadow.

“The market is all about confidence, and if you lose confidence, we are in great danger, then we have shown that fiscal sustainability is part of the plan,” Aquis stock exchange chief executive Officer Alasdair Haynes said.

Kwarteng on Monday dropped an element of a tax cut package of about 2 billion pounds ($2.3 billion) due to a life crisis and opposition from some of the government’s own lawmakers.

Analysts said it made little difference to the overall size of borrowing and that a more sustainable solution was needed before the Bank of England stopped supporting gilts in mid-October. The Financial Times and a government source said late on Monday that Kwarteng now plans to bring forward the release of his fiscal plan to later this month.

City officials snubbed for years after Brexit. They also welcomed her willingness to take bold action on the economy, but within limits to avoid repercussions on the financial sector. , but don’t lose your mooring from institutions that allow you to be fairly aggressive without any consequences for it,” said Miles Selick, chief executive of TheCityUK, which promotes the UK’s financial sector abroad .

“The UK has been a bit of a minefield over the past few weeks,” Ken Griffin, the billionaire founder of Citadel Securities, one of the world’s largest market-making firms, told an investment conference last week. Said.

“This is the first time we have seen a major developed market lose investor confidence in a long period of time. ”

Soft power

UK 261 The billion pound financial sector is one of its largest industries with a trade surplus of approx. For one billion pounds, that means a lot of things are at risk.

William Lai, CEO of think tank New Financial William Wright, whose reputation for robust, predictable and credible institutional frameworks has been a cornerstone of New York City’s international reach, has been missing for the past week or so.

“One has to be very bold in making investment decisions in the UK right now,” Wright said.

The unpredictability of UK policymaking could dampen the impact of Kwarteng’s move, Wright added , with friendlier financial rules coming this month.

The sector was already disadvantaged before the bond market crash, with banks, insurers and asset managers forced to spend millions to open centres

Initial regulatory reforms such as the relaxation of listing rules have yet to yield any significant results after Amsterdam overtook London as Europe’s largest stock trading hub.

“It really seems to me The problem is that if asset prices fall and the pound continues to rise very low, then UK plc is sold because Americans can come in and buy what they want. Why would you put your company in the UK knowing they become vulnerable? Haynes asked.

“We have further reduced our exposure in the UK as we are trying to better understand the trajectory of policy and whether it makes sense,” Campbell said.

“The ‘big bang’ of deregulation, starting with the removal of the cap on bankers’ bonuses inherited from the EU.

A wide-ranging bill is already before Parliament to update existing financial rules, relax insurance capital requirements and begin regulating new

operating “square mile” financial districts The City of London Corporation said the government’s focus on financial services with a competitive degree would support the UK’s economic recovery.

But Truss’ commitment to scrap all remaining EU rules by the end of 2023 raises some concerns as the existing rulebook is largely The above is based on tested international norms, with the UK playing a key role in developing it, and such radical changes will cost banks.

“Any approach to regulatory change needs to recognise this reality,” says TheCityUK’s Celic.

Truss’ promised scrutiny of financial regulators and Bank of England mandates has also raised concerns about political interference by regulators, whose independence has long been seen as an international measure of the City of London one of the advantages.

Kwarteng has rolled back to some extent, telling financiers last week that he would not patch up the current regulatory structure – pacifying concerned regulators for now Merger discussions — and said on Monday that he had never “undermined” the central bank.

($1=0.8968 pound sterling)




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