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Economy1 hour ago (Sep 27, 2022 04 6AM EST)

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Reversing UK confidence crash requires policy U-turn: economists © Reuters. Commuters, reflected in office windows, walk across London Bridge towards the financial district in London, England, on September 26, 2022. REUTERS/Peter Nicholls


Andy Bruce and Kate Holden

LONDON (Reuters) – Rock – Leading economists, investors and banks warned on Tuesday that only Investor confidence in the U.K. bottom will only be restored when Finance Minister Kwasi Kwarteng scraps economic plans that have roiled financial markets.

Sterling hit an all-time low of $1.0327 on Monday as British government bonds sold off sharply as investors lost confidence in Prime Minister Liz Truss’ new government. Some mortgage providers were unable to price their loans, so they suspended sales.

U.S. economist Larry Summers says the first step in restoring credibility is to “don’t say unbelievable things,” after Kwarteng suggested Further tax cuts on top of the £45bn value. The debt financing cuts he announced last week.

Former US Treasury Secretary Summers pointed to soaring interest rates on long-term UK debt as a “signature of a discredited situation” and said the crisis would affect London’s survival as a global financial centre ability.

“My guess is that the pound will be below parity with the dollar and euro,” he added.

Truss was elected prime minister earlier this month by Conservative Party members (not the wider electorate), vowing to pass deep tax cuts and deregulation , to lift the economy out of years of stagnant growth.

But an economic plan outlined by her finance minister, Kwarteng on Friday, which would require the issuance of an additional £72bn of government debt this financial year alone, has sparked financial markets. shockwaves, making such borrowing more expensive.

While many of her lawmakers are hailing a return to the Thatcherism and Reagan economics of the 1980s, some are beginning to wonder about the impact this will have on government finances. The impact expresses concern, companies and families.

Two years before the general election is due, the opposition Labour Party now leads Truss’ Conservatives by 17 percentage points, a level not seen in more than 20 years. YouGov poll for The Times.

Conservative MP Hugh Merriman, who backed Trus’ rival and former finance minister Rishi Sunak’s bid for prime minister, said the winner appeared “to lose on policy to our constituents we warned.”

“For the good of our country, for the livelihood of everyone in our country, I still hope to be proven wrong,” he tweeted (NYSE: ).

In response to the turmoil, the Bank of England and the Treasury issued a statement after the London stock market closed on Monday, hoping to reassure investors that the central bank said it would not hesitate to raise interest rates if necessary.

This immediately hit the pound further as some investors bet on an emergency rate hike, despite a partial recovery on Tuesday, up 0.9% to $1.0782 at 8.03am GMT 0703).

UK government bond yields also fell sharply, but only partially reversing Friday and Monday’s historic gains.

Former Bank of England Deputy Governor Charles Bean (Charles Bean) said he advocated urgent central bank action. Have been consulting with the governor and I think this is one of the occasions (calling a meeting) that might make sense,” he told BBC Radio.

… hurry up”, Strategy will be the best approach, Bean said.

Markets are still watching

Kwarteng on Monday pledged to develop medium-term debt reduction plan on Nov. 23, while separate budget responsibilities The office’s projections show the full scale of government borrowing.

Conservative MP Andrew Briggan has told Kwarteng he has been speaking to Kwarteng since Friday and wants him to cut spending on the government’s BBC radio in the coming weeks.

Alan Monks, an economist at JPMorgan Chase & Co, the largest US bank, said verbal intervention by the Bank of England and the Treasury was “measured”.

“But there is still no clear indication that the source of the problem — the government’s fiscal strategy — is being reversed or reconsidered,” Monks said.

“This needs to happen before November to avoid a worse outcome for the economy.”

Daiwa Capital Markets Economic Research director Chris Scicluna said there was no reason for the market to benefit the government from skepticism ahead of Kwarteng’s fiscal announcement in late November.

“The market could force them to act, with an emergency rate hike still possible before the next BoE meeting,” he said, referring to the next policy announcement scheduled for Nov. 3 announcement. .

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