The Bank of England hit the panic button again today and said it will further strengthen its emergency bond-buying plan, warning that an ongoing defeat in the gold market poses a “material risk to the UK’s financial stability”.
Officials took action again this morning after taking action in September after Chancellor Kwasi Kwarteng’s mini-budget sent the gold market into a tailspin and wreaked havoc on final-pay pension funds.
Deputy Prime Minister Therese Coffey appeared on TV minutes after the Bank of England’s statement and said she was unaware of the Bank’s new move.
It came when the Institute for Fiscal Studies warned of £60 billion of cuts to bring Britain’s finances under control.
Despite the Old Lady of Threadneedle Street stepping back into this morning, Therese Coffey has insisted Britain’s public finances are in ‘good shape’.
Bank of England officials rose again this morning after taking action in September after Chancellor Kwasi Kwarteng’s mini-budget sent the gold market into a tailspin and wreaked havoc on final-pay pension funds (Mr Kwarteng yesterday)
Ms Coffey denied that Chancellor Kwasi Kwarteng had put forward his medium-term budget plan because the markets were afraid.
She told Sky News: “I think he has decided we are in good shape and we will continue to discuss this with the government and parliament in the coming weeks.”
Ms Coffey was unaware of the Bank of England’s new move to further strengthen its emergency bond-buying plan, as she warned that an ongoing slump in the gold market poses a ‘material risk to UK financial stability’ .
Kwasi Kwarteng will need to cut government spending by £60 billion to bring government borrowing under control, a report warns today.
Yesterday in another U-turn, the Chancellor announced he will urgently put forward a major economic statement to show he is serious about tackling the government’s skyrocketing debt.
The so-called ‘medium-term budget plan’ will now be published on Oct. 31, just days before the Bank of England meets on Nov. 3 to discuss a possible sharp rate hike.
But despite the Halloween budget, government borrowing costs continued to rise yesterday.
Today’s report from the Institute for Fiscal Studies (IFS) warns that Mr. Kwarteng may need to make 15 percent cuts in most departments to balance the books.
Kwasi Kwarteng will need to cut government spending by £60bn to bring government borrowing under control, a report warns today (pictured at the Conservative Party Conference on Oct. 3)
It says this would require cuts totaling more than £60bn – and questions whether the government has the capacity to push through spending restrictions on this scale, as it risks stretching gullibility to breaking point .
The IFS report finds that increasing benefits in line with earnings rather than inflation could bring in £13bn, while cutting capital expenditures could bring in another £14bn.
But if NHS and defense budgets are protected, other departments would still face major budget cuts, as ‘stripping the fat’ won’t be enough to fill the public finance gap.
IFS director Paul Johnson said it is “as good as it gets” that Mr. Kwarteng can reduce his debt in five years. But he warned that introducing “unspecified tax cuts” for later years would undermine his credibility.
With ministers already struggling to convince Tory MPs of the need to roll back the Social Security bill, Mr Kwarteng faces a race to identify potential cuts in time.
A Whitehall source said: “It is clear to everyone that some very difficult decisions will be made.”
Another said government departments would likely be asked to operate within their existing budgets for the time being, with bigger cuts likely to be introduced after the next election.
Commons Treasury Committee chairman Mel Stride welcomed Mr Kwarteng’s decision to hold a Halloween budget, saying the plan could lead to a smaller hike in interest rates, which is “critical was for millions’ mortgage holders.
But he warned that this would only be the case if the plan “goes well with the markets” ahead of the bank’s decision. When asked whether Mr. Kwarteng’s financial plans are correct, Mr. Stride said, “Well, we’re going to find out.”
Today’s IFS report predicts government borrowing will reach nearly £200 billion this year (Truss and Kwarteng pictured on Oct. 4)
Today’s IFS report predicts government borrowing will be close to £200bn this year – double the £99bn forecast at the time of the last budget in March.
Meanwhile, an analysis by investment bank Citi predicted that the economy would grow at an average rate of just 0.8 percent per year over the next five years — far less than the 2.5 percent growth the chancellor said he wanted to achieve.
The Treasury Department has said Kwarteng’s plans will pay for themselves if they succeed in boosting economic growth by 1 percent above projected levels.
But he now faces a battle to convince the Office for Budget Responsibility that a series of supply-side reforms in areas such as planning, energy and immigration will boost growth.
Former Treasury mandarin Lord Macpherson said the magnitude of the tax challenge could force the chancellor to review his tax cut plans.
The crossbench peer said: “Unless the government can restore economic credibility, the market reaction in the coming weeks could be a lot worse than we’ve seen so far.”
Yesterday, Liz Truss blocked Kwasi Kwarteng’s plan to appoint an outsider as a top Treasury official.
The chancellor was about to appoint senior civil servant Antonia Romeo as the permanent secretary as part of plans to shake up the department’s “orthodox” thinking.
Mr Kwarteng fired the previous incumbent Sir Tom Scholar on his first day in office last month as he tried to force the Treasury to take a bolder approach to growth.
But sources in Whitehall said Ms Romeo’s nomination was overruled by the Prime Minister. Instead, civil service veteran and “fiscal conservative” James Bowler was appointed yesterday.
Two other senior Treasury officials — Cat Little and Beth Russell — were appointed as Mr Bowler’s deputies in an apparent effort to reassure financial markets of fiscal responsibility.
Number 10 insisted yesterday that Mr Bowler’s appointment was a “joint decision” between the Prime Minister and the Chancellor.