Liz Truss cancels honeymoon as pound plummets

Liz Truss defends her tax cut plans

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Liz Truss’s honeymoon is well and truly over after a disastrous day for the pound saw Labour take its biggest poll lead over Tories for more than 20 years. Ms Truss was elected Prime Minister earlier this month by a vote of Conservative Party members with a vow to snap the economy out of years of stagnant growth with deep tax cuts and deregulation.

But a tax-cutting, high-borrowing mini-budget outlined on Friday by her Chancellor Kwasi Kwarteng, which required an additional £72billion worth of government debt issuance in this fiscal year alone, has sent shockwaves through financial markets, sending the costs of such borrowing even higher.

While many of her MPs have cheered a return to the Thatcherite and Reaganomics doctrines of the 1980s, some have warned about the impact it will have on the finances of the government, companies and households.

Two years before a general election is due, the Labour Party now holds a 17-point lead over Truss’s Tories, a level not seen in more than two decades, according to a YouGov opinion poll for The Times newspaper.

The pound steadied during early trading in Asian markets on Tuesday as it recovered ground slightly from the record low of 1.0327 against the US dollar it struck early on Monday morning.

While Sterling sat around 1.08 dollars by 7am on Tuesday.

But economists have warned it could still fall to parity with the dollar this year for the first time.

Uncertainty has reigned in the wake of Mr Kwarteng’s £45billion package of tax cuts set out on Friday.

Mr Kwarteng sent sterling and government bonds into freefall on Friday with his mini-budget that was designed to grow the economy by funding tax cuts with huge increases in government borrowing.

Huw Merriman, a Conservative MP who backed Ms Truss’s rival Rishi Sunak in the race to become Prime Minister said the victor appeared to be “losing our voters with policies we warned against”.

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He posted on Twitter: “For the good of our country, and the livelihoods of everyone in our country, I still hope to be proven wrong.”

A Tory MP, who also backed Mr Sunak, said the move was worse than the Black Wednesday crisis in September 1992.

They told Politico: “This is self-inflicted and without a mandate, whereas at least [Black Wednesday] was perceived as a bid to manage a crisis.”

A Downing Street aide added that Ms Truss’s top team could not deal with multiple crises.

They said: “They look lightweight to me.

“There’s not a lot of experience in there.”  

Lenders were withdrawing some of their mortgages on Monday in response to the mini-budget while the Bank of England said it “will not hesitate” to raise interest rates to prop up the value of the sterling.

But Downing Street has made it clear the Government would not be deflected from its tax-cutting agenda by the reaction of the markets.

The Prime Minister’s official spokesman said the UK had the second lowest debt-to-GDP ratio in the G7 group of leading industrialised nations and that the Government’s plans were “fiscally responsible”.

The spokesman said: “The growth plan, as you know, includes fundamental supply side reforms to deliver higher and sustainable growth for the long term, and that is our focus.”

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