Kwasi Kwarteng is ‘very bright’ says Greg Hands
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Financial market analyst Fiona Cincotta has claimed the Bank of England is “playing chicken” with the Chancellor as the Government looks forced into making another U-turn on its mini-budget. With the pound recovering against the dollar in the last few days, experts have claimed the bounce back has been tethered to suggestions of a change in policy, meaning that the Government could face market disaster if they decide not to make further amendments. It comes as Prime Minister Liz Truss is reportedly in “listening mode” as she tries to settle the turbulence troubling her premiership.
Ms Cincotta said: “I think we have had the Bank of England very much playing a game of chicken, if you like, with the Chancellor.
“The fact now that we have got the Chancellor coming back from the IMF suggests that there really could be something happening.
“We’re seeing that being reflected in the pound, which recovered very strongly yesterday and is holding onto those gains today. So, something needs to happen today.
“It looks like the Bank of England has managed to bring the bond market a bit under control. Whether that stays for Monday depends very much on whether we see the Chancellor coming out with some changes to the mini budget, some backtracking, something to save the position for Monday.”
Kwasi Kwarteng cut short a trip to Washington to rush back early on Friday to London where pressure is mounting for the new Government to scrap much of an economic programme that unleashed turmoil on financial markets.
The pound and government bonds rallied further, adding to their partial recovery since Prime Minister Liz Truss’s government began on Thursday to look for ways to balance the books after her unfunded tax cuts crushed the value of British assets and drew international criticism.
Ms Truss and Mr Kwarteng are now under huge pressure to reverse course as polls show support for their Conservative Party has collapsed and colleagues have started openly discussing whether they should be replaced, just 37 days after they entered office.
The British leader is locked in talks with cabinet ministers to hammer out a way to preserve her push for growth while also reassuring the markets and working out which of the measures could be supported by her lawmakers in parliament.
Mel Stride, a backer of Ms Truss’s leadership rival Rishi Sunak and the head of the influential parliamentary Treasury Committee, said investors had priced in an economic policy U-turn, leaving the Government at the mercy of the markets.
“The problem, therefore, becomes if it doesn’t happen, then the markets may … have an adverse reaction to that,” he told the BBC.
Sources familiar with the matter said that Mr Kwarteng left a meeting of global finance ministers in Washington to join British colleagues who are looking again at their plan for more than 40 billion pounds of unfunded tax cuts.
During his time in the United States, he was told by the head of the International Monetary Fund of the importance of “policy coherence”, underlining how far Britain’s reputation for sound economic management and institutional stability has fallen.
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A Conservative Party lawmaker, who asked not to be named, said Ms Truss’s economic policy had caused so much damage that investors may demand even deeper cuts to public spending as the price for their support.
“Everything’s possible at the moment,” said the lawmaker, who backed Rishi Sunak in the leadership race. “Problem is the markets have lost trust in the Conservative Party – and who can blame them?”
Another lawmaker earlier this week said that Ms Truss needed to appreciate that there was not a huge amount of enthusiasm for her at the moment.
According to a source close to the prime minister, Ms Truss is now in “listening mode” and inviting lawmakers to speak to her team about their concerns on the programme to gauge which parts they would support in parliament.
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