London
CNN Business
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UK Prime Minister Liz Truss has sacked Finance Minister Kwasi Kwarteng and abandoned much of her discredited economic strategy in a desperate bid to salvage her month-long prime ministerial post.
At a Downing Street news conference, Truss said he was scrapping plans to reverse a rise in business taxes, a move that will save £18bn ($20bn), after a revolt by investors and members of his own Party. Conservative concerned about the impact. of rising government borrowing at a time of decades of high inflation.
“It was correct, given the problems that we had, that I acted decisively to ensure that we had economic stability,” Truss said.
in a letter posted on TwitterKwarteng said he had agreed to step aside at Truss’s request, adding that he believed his vision of “optimism, growth and change” was the right one and promised support.
Truss named former Foreign Secretary Jeremy Hunt as Kwarteng’s replacement. He will be Britain’s fourth finance minister in just over three months.
Kwarteng presented a “mini-budget” just three weeks ago, promising huge tax cuts and more borrowing in the hope of boosting UK economic growth. But the pound and government bonds collapsed on fears that plans higher juice inflation at a time when prices are already rising at their fastest rate in some 40 years.
That prompted the Bank of England to warn of a serious risk to the UK’s financial stability and announce three separate interventions to quell the bond market meltdown that put some UK pension funds on the brink of default.
“It is clear that parts of our mini-budget came further and faster than the markets expected,” Truss told reporters.
The unfunded tax cuts have been roundly criticized by investors, the International Monetary Fund, credit rating agencies and members of Truss’s own party, some of whom are now reported to be talking about removing it just five weeks into his tenure as prime minister.
Kwarteng had returned from the IMF meeting in Washington, DC, overnight for talks with Truss. His sacking on Friday means he served as UK Chancellor of the Exchequer for just 38 days, the second-shortest term on record.
Markets welcomed signs of a rethink from the government. As bond prices rose, the 30-year UK government bond yield fell again to 4.3%, down from a high of more than 5% in recent days, while the pound it was last trading at $1.12. It had fallen to an all-time low near $1.03 on September 1. 26
Bryn Jones, director of fixed income at Rathbones, said his team bought longer-dated UK government debt, known as gilts, earlier this week when they looked cheap, a gamble that is now paying off.
“The market for dorados is doing well, but we will see what happens today and next week. Things can change quickly,” the investment manager said. “The volatility tends to suggest there’s not a lot of confidence here.”
A £65 billion ($73.3 billion) emergency bond purchase program launched by the Bank of England on September 1. Dec. 28 is due on Friday, leaving market participants concerned the bonds could fall again, driving up mortgage rates and other borrowing costs further, if the government doesn’t quickly spell out how it plans to pay for the tax cuts. .
Former Bank of England deputy governor Charlie Bean told CNN Kwarteng’s ouster was “probably a necessary step” but Truss would now have to reveal a new plan to tackle government debt over the next three to five years. Otherwise, the British pound and UK government bonds could experience another sell-off.
“What the markets want to see is a consistent picture, how it all fits together,” Bean said. “Absent that, sterling and gold will come under pressure again.”
Kwarteng had already submitted its full budget statement as of October 1. 31, more than three weeks ahead of schedule. But investors may not be prepared to wait that long to be certain about the state of Britain’s public finances.
The UK government has already abandoned plans to lower top income tax rate.
— Richard Quest, Zahid Mahmood, and Xiaofei Xu contributed to this article
