• Truss says the government will not change course on UK policy
  • A new poll gives the opposition Labor Party a 33-point lead
  • Investors warn of loss of confidence in the government
  • Kwarteng says the mini budget was ‘absolutely necessary’
  • British government bond yields, sterling rise

LONDON, Sept 29 (Reuters) – British Prime Minister Liz Truss said on Thursday she would stick to her controversial plan to reignite economic growth, breaking her silence after nearly a week of financial market turmoil over the government’s push for big tax cuts.

After the Bank of England resumed bond buying in an emergency move to save pension funds from a partial collapse, Truss blamed the upheaval on the Russian invasion of Ukraine, which has fueled inflation around the world.

“We had to take urgent action to grow our economy, get Britain moving and tackle inflation, and of course that meant controversial and difficult decisions,” she told BBC radio.

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“But I’m willing to do that as prime minister because it’s important to me that we get our economy moving.”

Truss, a 47-year-old former British foreign minister, won the race for the leadership of the ruling Conservative Party on September 6, becoming the fourth prime minister in six turbulent years of British politics.

She defeated former finance minister Rishi Sunak by pledging to end “Treasury orthodoxy” with a new economic policy that would cut taxes and regulation, funded by massive government borrowing to lift the economy out of years of stagnant growth.

She dismissed Sunak’s warnings that her plans threatened Britain’s economic position in the world as “negative, decadent language”.

But her fiscal plan, set out by Finance Minister Kwasi Kwarteng on Friday, sparked a crisis of confidence in the government, hammering the pound and government bond prices and jolting global markets.

Asked if the so-called mini budget was a major economic disaster, Kwarteng told reporters that the government was focusing on economic development.

During a visit to local businesses in the north of England, he said, “The mini-budget was absolutely necessary to reset the conversation about growth and focus on delivering better growth outcomes.”

Bank of England chief economist Hugh Peel said on Thursday that there were “undoubtedly” UK-specific factors for the adverse market movements, contrary to the Truss’s view that they reflected global factors rather than her budget plans.

Meanwhile, a new YouGov poll shows the opposition Labor Party has a record 33-point lead over Trudeau’s Conservatives. Voting intention polls conducted on Wednesday and Thursday showed 54% support for Labor and 21% for the Conservatives.

Ken Griffin, the US billionaire founder of Citadel Securities, one of the world’s largest capital markets firms, said he was concerned about damage to Britain’s reputation.

“This is the first time we have seen a major developed market lose investor confidence,” he said.

Unfunded tax cuts

Truss said her government would not change course.

Having set out 45 billion pounds of unfunded tax cuts, she said in the coming weeks it would reform everything from childcare costs to immigration, planning and financial regulation. A full fiscal statement on November 23 will detail the cost of debt and measures to reduce debt.

British Prime Minister Liz Truss walks outside Downing Street on September 23, 2022 in London, Britain. REUTERS/Maja Smiejkowska/

With borrowing costs rising and markets volatile, investors and economists have said they can’t wait another eight weeks for details.

A committee of MPs in Britain’s parliament urged Kwarteng to bring forward a November 23 statement that would include new forecasts by the country’s fiscal watchdog. Read on

Also risking pension funds, rising borrowing costs led to the withdrawal of cheap mortgage offers and a jump in corporate lending rates.

The immediate impact of the BoE’s intervention fell sharply on bond yields on Wednesday, but investors still see the central bank raising its key interest rate by 1.25 percentage points to 3.50% on November 3, the date of its next scheduled announcement.

The rate is set to rise further to 4.50% in December and 6.00% by June, which will impact house prices and offset any gains from the property transaction tax cut announced last week.

Economists expect a less steep pace of rate hikes.

“It’s the right plan,” Truss told the BBC. Asked if it was time to reverse course, she said: “No, not at all.”

Yields on British government bonds rose modestly on Thursday, a day before the BoE’s move to temporarily stop buying and selling long-dated debt threatened the country’s pension fund.

Sterling rallied almost 2% against the dollar to more than $1.10, paring its fall in September to just under 5% and bringing its year-to-date decline to around 18%.

Simon Wolfson, the head of major British retailer Next ( NXT.L ), warned that a second cost crisis would follow a rise in energy prices in Britain. He cut the group’s forecast after the downturn in August.

Criticized by the market

Investors, businesses and consumers are now waiting for the government to announce more details on how it plans to grow the economy faster.

“Every day, every week, every month, the government will now be criticized by markets and businesses about how serious they are about growth and their fiscal responsibility to repay the debt,” said Tony Danker, director general of the Confederation of British Industry. , said late Wednesday.

Former BoE governor Mark Carney also criticized the plan, saying investors were frustrated by only issuing a “partial budget” without scrutiny from an independent office of budget responsibility.

Kwarteng and Truss must now try to calm nerves in the Conservative Party, which begins its annual conference on Sunday.

“There is no trust in the Truss government at the moment,” said Ipek Ozkardskaya, senior analyst at Swisscote. “The problem isn’t the financial cost per se, the problem is that people don’t believe in what it’s doing.”

“We just avoided a bad sovereign debt crisis in the UK because the Bank of England dramatically changed its plans and jumped in.”

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Written by Kate Holton and William Schomberg; Additional reporting by David Millican, Kylie McLellan, Paul Sandall, Elizabeth Piper, Sachin Ravikumar and James Davey in London and Bansari Mayur Kamdar in Bengaluru; Editing by Catherine Evans, Alex Richardson, Toby Chopra and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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