UK prime minister Liz Truss will hold emergency talks with the head of Britain’s independent fiscal watchdog after failing to dampen panic in the financial markets or shore up support from Tory MPs on her radical economic plan.
In a highly unusual move, the prime minister will meet the Office for Budget Responsibility’s Richard Hughes on Friday, along with her chancellor, Kwasi Kwarteng, before being presented with a first draft of its full fiscal forecasts next week, the Guardian reported.
It said the Office of Budget Responsibility has confirmed that it could have produced an economic forecast in time for the “mini-budget”, but was not asked to do so by Mr Kwarteng.
It came after a day when sterling reversed losses and climbed more than 1 per cent as the dollar slipped and investors analysed the Bank of England’s dramatic intervention in the bond market to calm markets following the UK government’s mini-budget.
Sterling had dropped in morning trading in London as Ms Truss made her first public comments defending the poorly received mini-budget in a round of interviews on local radio stations in which she struggled to be convincing. But the pound later rallied to stand 1.3 per cent on the day at $1.1026 in the afternoon session. It rose against most major currencies, with the euro last down 1.01 per cent at 88.48 pence.
Wall Street tumbled meanwhile on worries of a global economic downturn from aggressive central bank policy and fears that a rout in global currency and debt markets could spill over to stocks. The Nasdaq fell 3 per cent due to losses in megacap stocks while the S&P 500 slipped to its lowest level since November 2020.
Analysts struggled to identify an exact catalyst for sterling’s recovery on Thursday but pointed to the Bank of England’s intervention, a fall in the dollar and the rebalancing of portfolios towards the end of the quarter. Many cautioned that trading was febrile and the outlook for the pound remained gloomy.
“The BoE’s intervention has shown that it is willing to act when being pressured by the markets. This helps to stabilise the pound,” Esther Reichelt, foreign exchange strategist at Commerzbank, said. “However, the whole political situation remains highly volatile and sentiment can change quickly.”
On a visit to Northern Ireland, the chief economist of the Bank of England said the current economic woes facing the UK are in part home-grown after the prime minister blamed them on Russia.
Huw Pill said there was “undoubtedly a UK-specific component” to the recent market movements, which have seen the pound collapse and the cost of government borrowing soar.
“Over the course of the past week, there has been a significant repricing of financial assets,” he told an audience in Co Down.
Separately, former Bank of England governor Mark Carney accused Ms Truss’s government of “undercutting” the country’s economic institutions and working at “cross-purposes” with the central bank.
He also pushed back against UK government claims that the market turmoil was caused by wider global uncertainty, rather than its own policies.
“Certainly the global economy is going through some difficulties, financial markets have been adjusting, that’s been the case for over a year now,” he said. “But [over] the course of the last week, really, developments have centred around the UK. It’s been a response to the budget of the government and to some extent, policies working at some cross-purposes.” – Reuters