LONDON: New British finance minister Jeremy Hunt, seeking to stem a dramatic loss of confidence among investors in Prime Minister Liz Truss’s government, will announce tax and spending measures on Monday, two weeks earlier than scheduled.
Hunt, racing to rewrite Truss’s economic programme since he replaced Kwasi Kwarteng who was fired on Friday, is trying to halt a bond market rout that has raged since Sept. 23 when the government announced a string of unfunded tax cuts.
“The chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability,” the finance ministry said.
“He will also make a statement in the House of Commons this afternoon.”
Sterling was up about 1% against the dollar in trading in Asia. Hunt met Truss over the weekend to overhaul her original economic proposals.
Her grip on power has been severely weakened by the crisis, little more than a month after moving into Downing Street as the fourth British prime minister in six years.
“Strong start by Jeremy Hunt as chancellor,” Mel Stride, a lawmaker from the ruling Conservative Party who chairs parliament’s Treasury Committee, said on Twitter. “Gets what needs to be done and is acting fast. Surprising markets positively on the upside with an early statement to House of Commons today is a wise move.
Message is ‘we get what needs to be done and it’s being sorted’.“ Hunt will deliver a fuller medium-term fiscal plan as scheduled on Oct. 31 alongside forecasts from the independent Office for Budget Responsibility, the Treasury said.
Hunt met Bank of England (BoE) Governor Andrew Bailey and the head of Britain’s Debt Management Office late on Sunday to brief them on his plans, the Treasury said.
Hunt faces another test of his attempt to stem the crisis of confidence at 8 a.m. (0700 GMT) when the bond market reopens and will not have the support of the BoE’s emergency bond-buying programme that expired on Friday.
British bond prices immediately renewed their sharp sell-off in the final hours of trading on Friday as investors decided that Truss’s latest U-turn - to allow a rise in tax on company profits and not freeze them as she had planned - was not enough.
“Show the markets”
Hunt said on Saturday some taxes would go up, spending would rise less than previously planned and that he hoped investors would take note of his changes that represented a near total U-turn in fiscal policy. “No government can control the markets. No chancellor should seek to do that,” the former foreign and health minister told BBC television in an interview broadcast on Sunday.
“There is one thing we can do and that’s what I’m going to do, which is to show the markets, the world, indeed people watching at home, that we can properly account for every penny of our tax and spending plans.”
The political editor of The Times said Truss and Hunt agreed to Sunday to delay a cut in income tax for workers until 2024, a year later than Truss originally planned.
Hunt is trying to narrow a hole in public finances that the Sunday Times reported was as big as 72 billion pounds, including the 45 billion pounds of tax cuts originally planned by Truss, only about 20 billion pounds of which have so far been reversed.
BoE Governor Bailey gave Hunt a vote of confidence on Saturday, saying they had an “immediate meeting of minds” on the need to fix the public finances.
But Bailey also said interest rates would probably have to go up sharply next month, even with the economy likely to go into a recession soon.
Goldman Sachs said on Sunday it expected Britain’s economy to shrink by 1.0% in 2023, a more severe contraction than its previous forecast of a 0.4% shrinkage, as Truss’s tax cuts were reversed.