On Friday (23), the new government led by the new British Prime Minister Zhuohuisi launched the most aggressive tax reduction plan in nearly 50 years. Concerned about the deterioration in British finances, the British pound and British government bonds were sold off by market. The Bank of England made an emergency bond market intervention yesterday to support UK financial markets, hit by the government’s aggressive tax cuts. However, wave after wave, Zhuo Huisi is facing pressure from the party due to his chaotic fiscal policy.
The Bank of England buys unlimited UK government bonds
The new policy announced on Friday by Tracy’s government comes amid the Bank of England’s warning that Britain may already be in a recession. Concerned about the deterioration in the UK’s finances, the pound against the US dollar plunged a few days ago, hitting an all-time low of 1.0379. British government bonds were also sold off. The 10-year government bond rate once climbed to 4.5%. and the 20-year government bond rate of return was approaching 5 centimeters.
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【Read more】How the Bank of England entered the market to intervene in the bond market
The Bank of England rushed into the market yesterday to buy £ 1 billion worth of government bonds and said it will buy all necessary government bonds in unlimited quantities until 14 October. GBP / USD rebounded sharply overnight once it regained its 1.09 level, almost recovering its losses from last Friday, and last time it fell back to 1.0789, down 0.8619%. The UK 10-year government bond yield fell to 4.0070% and the 20-year government bond yield fell to 4.134%.
Monetary tightening vs fiscal easing
Like the rest of the world’s major economies, the UK faces stubbornly high inflation and the country’s central bank is aggressively raising interest rates to curb the rampant situation, but recession fears plague it too. amid aggressive monetary tightening. Therefore, Zhuohuisi’s new policy confronts the UK with the embarrassing situation of monetary tightening and fiscal easing at the same time.
【Read more】New UK Chancellor unveils biggest tax cut in 50 years
Commonwealth Bank of Australia strategist Carol Kong wrote in a note to clients that the Bank of England bond purchases could alleviate the UK government’s financial costs, but did not resolve the tension between fiscal easing and monetary tightening.
Zhuo Huisi is said to be under pressure from the party
When the country’s central bank is trying to maintain financial market stability, on the other hand, Zhuohuisi’s policy is rumored to have wreaked havoc in the financial market. Faced with pressure from the Conservative Party, Zhuohuisi could become the lowest. -Lived prime minister in British history.
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British “Sky News” quoted sources claiming that a former Prime Minister’s cabinet minister Johnson criticized the Zhuohuisi government for playing with people’s livelihoods with the economic level of the college entrance exam, and he even claimed that Conservative MPs had written to Brady, chairman of the 1922 Committee, to propose a vote of confidence to Zhuohuisi.
Conservative MP Simon Hoare, who supports Rishi Sunak, Rishi Sunak’s rival as prime minister, accused the new government’s policies of triggering a market rout: “This incompetent madness cannot continue.”
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It was reported that the new government failed to contact party members and explain relevant policies or get them to support them, which caused dissatisfaction among party members. Some MPs pointed out. The number of people opposing Zhuohuisi has not yet posed a major threat to her and it is too early to tell the level of severe distrust in Zhuohuisi.
Investors were quoted by Reuters as saying they were concerned that Zhuohuisi’s new policy will force the Bank of England to sharply raise interest rates, which will accelerate the UK economy’s recession. The only way for the new government to restore confidence is to reverse the tax cuts, but now there seems to be no such sign.
Source: full report
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