Britain’s Truss set to fire Kwarteng – Reuters

  • Kwarteng leaves IMF meeting early
  • Pressure mounts for U-turn tax policy
  • Pound, bond prices are recovering
  • Prime Minister Truss now faces a political fight

LONDON, Oct 14 (Reuters) – British Prime Minister Liz Truss will fire her finance minister Kwasi Kwarteng and scrap part of her economic agenda, the Times newspaper reported on Friday, in a bid to survive market and political pressure triggered by their budget plan. .

Downing Street confirmed that Truss, in office for just 37 days, would hold a press conference later on Friday. Minutes earlier, Kwarteng landed in London after leaving IMF meetings in Washington early to work on their economic plan.

UK government bonds rallied further, adding to their partial rally since the Truss government began looking for ways to balance the books after its unfunded tax cuts crushed the value of UK assets and attracted international censorship.

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Kwarteng had announced a new fiscal policy on Sept. 23, delivering on Truss’ vision of sweeping tax cuts and deregulation to try to pull the economy out of years of stagnant growth.

But the markets’ response was so fierce that the Bank of England had to step in to prevent pension funds from being caught up in the chaos as borrowing and mortgage costs soared.

Truss and Kwarteng have come under increasing pressure to reverse the trend since polls showed support for their Conservative party had plummeted, prompting their colleagues to openly discuss whether to replace them.

After triggering a market rout, Truss now runs the risk of bringing down the government if it fails to find a package of government spending cuts and tax hikes that can appease investors and pass any parliamentary vote to the court. Communal room.

Chris Bryant of the opposition Labor Party, who chairs the House Standards and Privileges Committee, wrote on Twitter: “If you can’t get your budget through parliament you can’t govern. It’s not s It’s not about flip-flopping, it’s about good governance.”

Truss’ search for savings will be made more difficult by the fact that ministries have spent a decade cutting budgets, while discipline within the ruling party has frayed after six years of turbulent post-Brexit political drama .

Sources familiar with the matter told Reuters that Kwarteng left a meeting of global finance ministers in Washington to rush to London and join ministers seeking ways to balance the books.

The Times newspaper’s political editor reported that Kwarteng was sacked. Downing Street declined to comment, but he was not expected to appear at Truss’ press conference later on Friday, fueling speculation over his future.

While in the United States, Kwarteng had been briefed by the head of the International Monetary Fund on the importance of “policy coherence”, stressing how Britain’s reputation for sound economic management and institutional stability had fallen.

Shortly before 11:00 a.m. (1000 GMT), UK TV news channels broadcast live footage of a British Airways plane landing at Heathrow, carrying Kwarteng.

In Westminster, Truss was trying to strike a deal with his ministers on a way to safeguard his growth spurt while reassuring markets and working out what measures could be backed by his lawmakers in parliament.

Earlier, a Commerce Department minister, Greg Hands, said people wanting budget details should wait until October 31, when Kwarteng was due to present its full plan along with an independent forecast that will show the cost of the tax cuts for public finances and whether they will stimulate economic growth.

Critics of the government had said the wait was unacceptable.

Rupert Harrison, portfolio manager at Blackrock and a former adviser to former UK finance minister George Osborne, said markets had now almost fully priced in a U-turn.

“(It) means that if the U-turn doesn’t happen, markets will react badly,” he said on Twitter.

INTERNATIONAL CREDIBILITY

A Conservative Party MP, who asked not to be named, said Truss’s economic policies had done so much damage that investors could demand even deeper cuts in government spending as the price of their support.

“Anything is possible right now,” said the lawmaker, who has backed Sunak in the leadership race. “The problem is that the markets have lost faith in the Conservative Party – and who can blame them?”

Another lawmaker told Reuters earlier this week that Truss needs to understand there isn’t much enthusiasm for her right now.

According to a source close to the Prime Minister, Truss is now in “listening mode” and is inviting lawmakers to speak to his team about their concerns to assess which parts of the program they would support in parliament.

Credit Suisse economist Sonali Punhani said markets needed a credible fiscal plan as the government needed to come up with around 60 billion pounds through tax reversals and further spending cuts.

“It would be difficult to provide the magnitude of these reductions, but for them to be credible they need to be delivered earlier rather than in the latter part of the forecast,” Punhani said.

One policy that should be reversed is their plan to keep corporate tax rates at 19%. It had been a key part of their package after Sunak proposed raising it to 25% when he was finance minister under Truss’ predecessor Boris Johnson.

This could save £18.7bn by 2026/27.

The latest bout of political drama to grip Britain comes as the Bank of England prepares to end its intervention in the government securities market.

($1 = 0.8869 pounds)

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Written by Kate Holton; additional reporting by Sarah Young, David Milliken and Muvija M; Editing by Michael Holden, Catherine Evans and Hugh Lawson

Our standards: The Thomson Reuters Trust Principles.

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