Pound rises ahead of Chancellor’s statement
Chancellor Jeremy Hunt will bring forward a package of tax and spending measures today and is expected to reverse more of Prime Minister Liz Truss’s economic plans.
He will make a statement in the House of Commons this afternoon “to support fiscal sustainability”, the Treasury said this morning. He will issue a statement at 11am.
Initial market response was positive. Sterling rose on the announcement by more than 1% against the dollar to above $1.13 and 0.9% against the euro to €1.159.
The FTSE 100 defied expectations of a lower start by trading 36 points higher just after the open before drifting to a single digit rise at 6,865.86 (8.30am). Yields on 10-year gilts fell 15 basis points, reducing the cost of government borrowing.
Today’s statement follows further conversations between the Prime Minister and the Chancellor over the weekend and aims to ensure public finances underpin economic growth.
The Chancellor will deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.
Mr Hunt met with Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on his plans.
There has been speculation that the plan to bring forward the 1p cut to the basic rate of income tax will be abandoned, the latest reversal of Kwasi Kwarteng’s mini-budget. He may also restore the IR35 reforms for the self-employed and drop the reintroduction of VAT-free shopping for tourists..
While the statement will attempt to shore up confidence in Downing Street, it will also fuel speculation over who is in charge now that most of the Prime Minister’s economic plan is being ditched.
Attention is focusing on how the markets react to a weekend of revolving doors and behind-the-scenes plotting.
In Asia the pound opened higher against the dollar, to trade at over $1.12. Kwasi Kwarteng’s downfall as Chancellor, after just 38 days in the job, not only pushed the pound to almost parity with the dollar, but sent the cost of government borrowing and mortgage rates up and led to emergency intervention by the Bank of England.
Andrew Bailey, the Bank’s governor, told the markets last week that its bond-buying ended on Friday.
Sir Keir Starmer is demanding Prime Minister Liz Truss delivers her own statement in parliament today explaining how she intends to restore stability and continue in office.
The Labour leader said Ms Truss needs to provide some reassurance to the country following a brutal weekend of political turmoil which saw a change of Chancellor and a campaign gather to force her out of Downing Street.
“The Prime Minister says she is in charge but the evidence this weekend suggests she is in office but not in power,” said Sir Keir.
His comments came after Mr Hunt effectively tore up the Prime Minister’s growth plan and reversed more of her tax-cutting plans, despite insisting Ms Truss remained in charge.
His actions prompted more Tory backbenchers to call for Ms Truss to step aside. Crispin Blunt, Andrew Bridgen and Jamie Wallis demanded the Prime Minister resign, while other senior figures within the parliamentary party expressed deep unease with her leadership, but stopped short of calling for her to go.
Mr Blunt told Channel 4’s Andrew Neil Show: “I think the game is up and it’s now a question as to how the succession is managed.”
Tensions heightened following an awkward press conference on Friday at which the Prime Minister was expected to provide some calm following the sacking of Kwasi Kwarteng as Chancellor. Instead, her underwhelming statement and robotic responses to just four questions from journalists infuriated her own MPs.
Sir Keir added: “Friday’s press conference completely failed to answer any of the questions the public has. Mortgages are rising and the cost of living crisis is being felt ever more acutely: the Conservative Government is currently the biggest threat to the security and the finances of families across the country.
“That’s why the Prime Minister must come to Parliament on Monday, to explain what she plans to do to turn the situation around.
“If the Prime Minister won’t take questions from journalists, Liz Truss must at least take them from MPs representing the families whose livelihoods she’s putting at risk.”
US president Joe Biden called Ms Truss’s original economic policies “a mistake”. In an unusual intervention, he said the economic turmoil that followed the government’s mini-budget had been “predictable”.
Former Tory minister Liam Fox called the current situation the “deepest political hole that we have experienced in a generation”.
He also criticised the sacking of Kwasi Kwarteng, calling it “one of the most cynical and disgraceful moves in recent political history”.
Labour’s Shadow Business Secretary Jonathan Reynolds said: “I’m not even sure what this Government’s economic policy is at the moment. I don’t know which bits of the budget still apply, and I don’t know what we will hear next week.”