Britain’s new finance minister on Monday jettisoned most of Prime Minister Liz Truss’ raft of fiscal measures, saying it was “not right” to borrow money to fund tax cuts, sending long-dated gilt prices sharply higher.
The pound soared by as much as 1.4% to a session high of $1.1332 and by 0.8% against the euro to a peak of 86.90 pence.
“Markets have reacted positively to this morning’s announcements from Chancellor Jeremy Hunt, who has torn up almost everything that was left of Kwasi Kwarteng’s ‘mini-budget,’” said Michael Brown, head of market intelligence at Caxton in London. “The measures plug around 32 billion pounds of the 40 billion pound hole that still existed in the public finances after Friday’s U-turn on corporation tax being increased, and have gone some way to reassuring markets that the UK will return to a more sustainable path of borrowing.”
Jeremy Hunt on Friday replaced Kwasi Kwarteng, who Prime Minister Liz Truss sacked following the so-called “mini-budget” on Sept. 23 that sent UK assets sliding.
A raft of unfunded tax cuts at a time when the government is already dealing with a substantial current account deficit, a weak currency, high inflation and an economy edging into recession, unnerved investors and forced the Bank of England to step in to stabilize bond markets.
With the UK bond market in meltdown, the Truss government had already ditched two central elements of its fiscal package, including a plan to freeze corporation tax and another to remove a higher tax rate for the top earners.
Hunt on Monday announced a series of tax changes that he said would raise 32 billion pounds ($36.19 billion) a year in extra revenues.
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