- Quarting to leave IMF meeting early
- Pressure mounts for a reversal tax policy
- Pound, bond prices recover
- Prime Minister Truss now faces a political battle
LONDON (Reuters) – British Prime Minister Liz Truss will fire her finance minister Kwasi Quarting and scrap parts of her economic package in an effort to survive the market and political pressures unleashed by her fiscal plan, the Times reported on Friday. .
Downing Street confirmed that Truss, who is in office for only 37 days, will hold a press conference later on Friday. Minutes earlier, Kwarteng returned to London after leaving the International Monetary Fund meetings in Washington early to work on their economic plan.
British government bonds have risen further, adding to their partial recovery since the Truss government began looking for ways to balance the books after unfunded tax cuts crushed the value of British assets and drew international criticism.
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Kwarteng had announced new fiscal policy on September 23, which led to Truss seeing broad tax cuts and deregulation in an effort to pull the economy out of years of stagnant growth.
But the market response was so fierce that the Bank of England had to step in to prevent pension funds from falling into disarray, as borrowing and mortgage costs soared.
Truss and Quarting have been under mounting pressure to reverse course since then, with polls showing support for the Conservative Party collapsing, prompting colleagues to openly debate whether they should be replaced.
Having battered the market, Truss now risks bringing down the government if she cannot find a package of public spending cuts and tax increases that can satisfy investors and pass any parliamentary vote in the House of Commons.
Chris Bryant of the opposition Labor Party, who chairs Parliament’s Standards and Privileges Committee, wrote on Twitter: “If you can’t get your budget through Parliament, you can’t govern. This isn’t about transitions, it’s about good governance.”
Truss’ search for savings will be made more difficult by the fact that government departments have spent a decade cutting their budgets, while discipline in the ruling party has frayed after six years of violent political drama that followed Brexit.
Sources familiar with the matter told Reuters that Quarting left the meeting of global finance ministers in Washington to rush back to London and join ministers looking for ways to strike a balance.
The Times’s political editor reports that Quarting has been fired. Downing Street declined to comment but was not expected to appear at Truss’ press conference later on Friday, fueling speculation about his future.
During his time in the US, the head of the International Monetary Fund told Carting of the importance of “policy coherence,” underlining the extent to which Britain’s reputation for sound economic management and institutional stability had deteriorated.
Just before 11am (10:00 GMT), British television news channels switched to broadcasting live footage of a British Airways plane landing at Heathrow with a quart.
In Westminster, Truss was trying to reach an agreement with her cabinet ministers on a way to keep her momentum on growth while also reassuring markets and outlining measures her MPs could support.
Earlier, Commerce Secretary Greg Hands said people who wanted details on the budget would have to wait until October 31 when Karting was due to lay out his full plan along with independent forecasts that would show the cost of tax cuts to the public finances. and whether it will boost economic growth.
Government critics said the wait was unacceptable.
Robert Harrison, portfolio manager at Blackrock and an advisor to former British chancellor George Osborne, said markets are now almost fully priced at a turn.
“(This) means that if the shift doesn’t come, markets will react poorly,” he said on Twitter.
A Tory lawmaker, who asked not to be named, said Truss’ economic policy had caused so much damage that investors could demand deeper cuts to public spending as the price of their support.
“Anything is possible at the moment,” said the MP who supported Sunak in the driving race. “The problem is that the markets have lost faith in the Conservative Party – and who can blame them?”
Another deputy told Reuters earlier this week that Truss needs to appreciate the lack of enthusiasm for her at the moment.
According to a source close to the prime minister, Truss is now in a “listening mode” and is inviting lawmakers to speak to her team about their concerns to decide which parts of the program they will support in Parliament.
Sonali Bonhani, an economist at Credit Suisse, said the markets needed to see a credible fiscal plan, as the government needed to find around £60 billion through tax shifts and further spending cuts.
“It will be difficult to present the scale of these reductions, but to be credible, they need to be delivered sooner rather than in the later part of the forecast,” Bonhani said.
One policy that is expected to be reversed is their plan to keep corporate tax rates at 19%. It formed a major part of their package after Sunak proposed increasing it to 25% when he was finance minister under Truss’ predecessor Boris Johnson.
This could save EGP 18.7 billion by 2026/27.
The latest bout of political drama taking over Britain comes as the Bank of England prepares to end its intervention in the gold market.
(dollar = 0.8869 pounds)
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Written by Kate Holton; Additional reporting by Sarah Young, David Milliken, and Movija M; Editing by Michael Holden, Catherine Evans, and Hugh Lawson
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