Kwasi Kwarteng set for crisis meeting with bankers after pound plunges
Kwasi Kwarteng is meeting with Britain’s top bankers and other senior City figures on Tuesday, in planned talks that are likely to turn into a crisis meeting after the sell-off of the pound and government bond market meltdown.
Banks emerged among the biggest beneficiaries of Friday’s mini-budget when the chancellor scrapped the EU banker bonus cap and the top 45% rate of income tax, cut stamp duty to prop up the housing market and trailed “an ambitious package of regulatory reforms” to be unveiled this autumn.
However, the announcement sent the pound and government bonds plunging, as the scale of the tax cuts, which overwhelmingly benefit the better-off, shocked markets and prompted worries about how they will be paid for.
Unusually, the Office for Budget Responsibility, the government’s fiscal watchdog, was not asked to provide forecasts for how the package will affect government borrowing and economic growth in coming years. Kwarteng has requested that the OBR sets out a full forecast alongside the medium-term fiscal plan, on 23 November.
Jim Reid, a strategist at Deutsche Bank, said: “When it comes to the last 24 hours, UK assets have remained at the eye of the storm as the negative reaction to the government’s mini-budget on Friday continued. The country’s government bonds were completely routed for a second day.”
Markets are braced for more volatility. The pound hit an all-time low of about $1.035 on Monday morning and is now trading at about $1.08, down 7% this month but up on the day on Tuesday.
UK government borrowing costs are on course for their biggest monthly rise on record, going back to the 1950s, as international faith in Britain is battered by Kwarteng’s borrowing binge to fund tax cuts. The yield on the
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