© Archyde.com Bank of England governor smiles Is Truss tax cut reversal adding another real hammer?
Financial Associated Press, October 14 (Editor Malan) A message on Thursday said that the British government is discussing changes to Prime Minister Truss’ tax cut plan, which may reduce the scale of its tax cuts again.
As soon as the news came out, the British financial market was shaken. The pound rose by more than 1.48% against the dollar on the day. The yield on the 10-year British government bond fell by about 20 basis points, and the yield on the 30-year government bond fell by about 45 basis points, hitting a record high since October 7. the lowest level. The British stock market also rose in the short-term, but then the market fell again due to the US CPI data, and it only recovered its losses in late trading and closed up 0.35%.
Even more surprising, British Chancellor of the Exchequer Kwaten will shorten his trip to the United States and return to London later on Thursday to continue his involvement in the development of the government’s long-term fiscal plan, according to a Treasury spokesman.
On Thursday, Bank of England Governor Bailey arrived in Washington for an International Monetary Fund meeting. He gave no answer but smiled when asked by reporters whether abandoning the massive tax cut plan would end weeks of turmoil in British financial markets.
State Street’s head of macro strategy for Europe, the Middle East and Africa, Tim Graf, explained that Bailey’s pressure on politics appeared to be working.
Central Bank-Government tussle The Bank of England continued its repurchase on Thursday, buying a record 4.8 billion pounds of assets and doubling its bond purchases from Tuesday. But in accordance with the central bank’s previous commitment, this Friday, the Bank of England will end a total of 65 billion pounds of emergency bond purchases.
Previously, traders expected the Bank of England to have no choice but to extend its bond-buying program to maintain confidence in financial markets, which would be damaging to the credibility of the central bank and Bailey.
But looking at it now, Bailey’s move is higher, and Truss and Kwarten seem to concede first.
According to sources, no new changes will come until the weekend, but any announcements are likely to be made by October 31. Negotiations are ongoing, so there is no exact timing.
Earlier media reports said that Truss may cancel his promise to keep the corporate tax rate unchanged next year, and instead inherit the policy of former Prime Minister Johnson and raise the relevant tax rate.
Earlier this week, the Institute for Fiscal Studies (IFS), a UK think tank, estimated that the UK government would need to save £60bn to stabilize the debt-to-GDP ratio. Raising corporation tax under Johnson’s plan could generate an extra £18bn in revenue, while budget cuts could save another £5bn.
Outside Criticism At this week’s IMF meeting, Bailey and Kwarten were in a different situation.
IMF Managing Director Kristalina Georgieva praised the Bank of England’s bond-buying support, saying it was appropriate and addressed risks to financial stability.
In addition, she veiled sarcasm that policy needed coherence and clear communication, aiming to accuse Truss of the aggressiveness and recklessness of his £45bn tax cut.
Mark Carney, the former governor of the Bank of England, also criticized that in this different risk environment from the past, mistakes will be punished heavily, the system is very important, and the guidelines are very important. He believes that Truss’s experimental plan lacks details and cannot be recognized by the market.
Rabobank analyst Richard McGuire said: ‘We hope the situation calms down, but there must be some substantial follow-up.
Market pressure has eased for now on bets on a U-turn in the tax cut plan. But the Bank of England will stop buying bonds starting next Monday, and investors are worried that if the government still does not have a clear tax and spending policy announcement by then, the market could take another hit.