UK financial markets will have another chance to make decisions on Prime Minister Truss’ economic stimulus on Tuesday, but there will be no help from the Bank of England to offset any turmoil.
It is unusual for a political trend in a developed country to be accompanied by such market turmoil. The pound plunges to all-time lows as traders vehemently reject Truss’s tax plan. The prime minister was forced to sack Finance Minister Kwartengu and withdraw some of the big tax cuts. Questions also swirl about the steps needed to restore investor confidence and the prime minister’s future.
Truss acknowledged the situation at a press conference on Wednesday, saying, “Action is now needed to reassure markets about fiscal discipline.” Since then, Bank of England Governor Bailey has already spoken to new Chancellor Hunt and has revealed that he agrees on the importance of fiscal sustainability.
British Chancellor Hunt secures the support of the central bank governor
While these official statements may help calm markets, it’s unclear whether the Truss administration’s previously unthinkable actions would be enough to win back investor support. Furthermore, the Bank of England’s emergency bond purchase program has ended and the UK market is likely to be nervous at the start of the week.
“The events of the past three weeks have clearly damaged confidence, which may take some time to recover,” UBS rate strategist Rohan Khanna said Thursday.
Goldman Sachs cuts UK growth forecast after fiscal policy shift
After closing 1.4% lower against the dollar on the 14th, the pound rose 0.5% to $ 1.1226 on the early morning of the 17th, the start of the Asian time week. Investors will be key when the UK bond market opens on the 17th.
Hunt’s appointment provided financial support, but there is uncertainty that LDI’s had time to rebuild their cash reserves before the end of the Bank of England aid.
“While the government’s message will clearly support the market, it’s hard to say how much of the LDI fund’s response remains,” Karnah said.
British Chancellor Hunt secures the support of the central bank governor
UK bonds will resume trading at 8:00 London time (16:00 Japan time) on the 17th. An increase in yield yields may also require further action from the Prime Minister’s Office and renewed support from the UK. Bank of England. The government bond auctions on the 18th and 19th will also be a factor to keep an eye on.
The UK bond market was sold on 14 and the 30 year UK bond yield closed at 4.78%. It has approached 5%, which is considered a non-negotiable line since the intervention of the Bank of England. Yields have fluctuated nearly 60 basis points (bps, 1 bps = 0.01%) within hours.
news-rsf-original-reference paywall">Original title:Truss faces market judgment as the BOE exit leaves the UK exposed(extract)
