Britain’s Kwarteng moves to calm investors with early budget date and Treasury pick

  • Kwarteng advances budget plan to October 31
  • An experienced Treasury official appointed to head the ministry
  • Bank of England steps up support for bond market
  • Kwarteng heads to IMF meetings this week

LONDON, Oct 10 (Reuters) – Britain’s Finance Minister Kwasi Kwarteng, who caused a bond market rout and international consternation last month with unfunded tax cuts, has brought his next budget announcement up nearly a quarter. a month and appointed a Treasury insider to lead the department.

Under pressure to restore investor confidence in the new government’s economic program, Kwarteng said he would reveal longer-term fiscal and spending plans and independent economic forecasts on Oct. 31, not Nov. 23 as planned.

He also announced on Monday that veteran Treasury official James Bowler would be the new top Treasury Department official, after he unsettled investors by abruptly ousting his predecessor.

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Newspapers reported last week that Prime Minister Liz Truss wanted to hand over the post to a foreigner, after accusing the Treasury of following “orthodoxy” on low-growth economic policy.

Mel Stride, a lawmaker who chairs the Treasury Committee in the lower house of parliament and who had criticized Scholar’s departure, said the appointment would help reassure investors.

“What we need right now are a pair of safe hands. We need to rely on our strong institutions. We don’t want to undermine them in any way,” Stride told BBC radio.

The decisions came as Kwarteng prepared to travel to Washington this week with criticism from the International Monetary Fund of Britain’s new policy direction ringing in his ears.

Investors remained anxious, pushing yields on longer-term British government debt higher even as the Bank of England widened its emergency support for the fragile bond market, which is due to expire on Friday.

The Financial Conduct Authority, a regulator, told trading platforms they must notify it immediately of any material deterioration in market conditions, while the European Union’s securities watchdog questioned Britain. Brittany on extreme movements.

The earlier date of the Kwarteng budget announcement will allow the BoE to factor the government’s fiscal and spending plans into its thinking ahead of announcing its next interest rate decision on Nov. 3.

Many investors believe the BoE could raise rates by a full percentage point to counter the inflationary impact of Kwarteng’s tax cuts.

Britain’s Chancellor of the Exchequer Kwasi Kwarteng speaks during the British Conservative Party annual conference in Birmingham, Britain October 3, 2022. REUTERS/Hannah McKay

It is also due to start its quantitative tightening (QT) sales of UK government bonds on Oct. 31 after postponing it due to its emergency bond buying decision.

“You have a lot of risk events ahead,” said Pooja Kumra, senior European rates strategist at TD Securities. “The end of temporary buying, then the budget outlook on Oct. 31 and the start of QT, and the BoE meeting on Nov. 3.”

NEW BUDGET, SAME GROWTH PROBLEMS?

Kwarteng said the new date for its medium-term budget statement would give the Independent Office for Budget Responsibility (OBR) enough time to make a full forecast.

He previously said the OBR would not have had enough time to produce satisfactory projections for its September 23 announcement, although the OBR contradicted him.

Kwarteng and Truss hope the OBR will back up their claims that the combination of tax cuts and reforms in areas such as planning rules and immigration will boost Britain’s economic growth prospects.

But last month the IMF said the government’s push for economic growth and the Bank of England’s attempts to control inflation were going against each other.

The new budget plan date gives Kwarteng and Truss just over two weeks to sort out divisions within his cabinet over government spending cuts.

Having already bowed to pressure to drop the most divisive policy – the elimination of the top 45% income tax rate for top earners – they are facing cabinet opposition to cutting social benefits in inflation-adjusted terms.

Two senior ministers last week expressed their displeasure with Truss’s U-turn on income tax, suggesting unity within his top team was crumbling.

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Additional reporting by Huw Jones and Harry Robertson; Editing by Catherine Evans

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