The UK’s Chancellor of the Exchequer Kwasi Kwarteng has said he remains “confident” his strategy of boosting economic growth through tax cuts will work, as he seeks to reassure investors following two days of turmoil in the financial markets.
The British pound on Monday plunged by more than 4 percent to just $1.03, an all-time low, before it stabilised to about $1.08 on Tuesday.
It came after Prime Minister Liz Truss’s new government unveiled the biggest package of tax cuts in half a century, which was aimed at spurring growth in the UK economy but caused panic among investors concerned about the increased government borrowing.
Talking to financial investors on Tuesday, Kwarteng said: “We are confident in our long-term strategy to drive economic growth through tax cuts and supply side reform. Supply side reforms are critical—increasing capacity brings down prices.”
“Cabinet ministers will set out more supply side measures over the coming weeks to make meaningful change. Right across government, departments have to be focused on this,” he said, according to a readout of the meeting released by the Treasury.
The chancellor insisted that the government is “committed to fiscal discipline.”
He said the medium-term fiscal plan, due to be published on Nov. 23, alongside a forecast from the Office for Budget Responsibility, will offer “a credible plan to get debt to GDP falling.”
Central Bank Intervention
In an attempt to calm the markets, Bank of England Governor Andrew Bailey issued a statement on Monday insisting the central bank would raise interest rates by “as much as is needed” to shore up the pound and keep the lid on inflation.Huw Pill, chief economist at the Bank of England, said on Tuesday that the bank’s Monetary Policy Committee (MPC), which sets interest rates, “cannot be indifferent” to the repricing of financial assets seen in the last few days.
Pill, who delivered his speech at the Barclays-CEPR International Monetary Policy Forum, reassured listeners the MPC is unwavering in its commitment to bringing inflation back down to its 2 percent target.
Tories ‘in Jeopardy’
After a YouGov poll for The Times of London showed Labour opening up a 17-point lead over the ruling Conservatives, there was deepening concern among Tory MPs at the political fall-out from Kwarteng’s plan.Mel Stride, chairman of the Treasury Committee in the House of Commons, said the party’s reputation on the economy was “in jeopardy.”
He said the country was in “an extremely difficult situation” with higher borrowing costs than Italy or Greece.
He told the BBC that it is essential to rebuild confidence in the wake of the chancellor’s “unfunded” tax promises.
