Skip to content

VIEW Britain’s finance minister unveils “mini budget”

  • by

Britain’s Chancellor of the Exchequer Kwasi Kwarteng walks outside Downing Street in London, Britain, September 23, 2022. REUTERS/Clodagh Kilcoyne

Register now for FREE unlimited access to Reuters.com

LONDON, Sept 23 (Reuters) – British finance minister Kwasi Kwarteng on Friday unveiled a broad set of measures aimed at cutting taxes and energy bills for households and businesses to try to drive economic growth that would require a huge increase in borrowing. read more

UK gilt yields surged by the most in a day in well over a decade as the UK Debt Management Office laid out plans for additional issuance to fund the planned spending, while the pound hit new 37-year lows against the dollar.

Britain’s blue-chip stocks (.FTSE) slid even further into the red, in line with a broader equity-market decline.

Register now for FREE unlimited access to Reuters.com

MARKET REACTION:

BONDS: Two-year gilt yields rose by nearly 50 basis points at one point, to a high of 3.997%, set for their biggest one-day rout since late 2009, while five-year yields soared by half a percent, marking their largest one-day rise since the early 1990s.

FOREX: Sterling extended losses, falling 1.4% on the day to around $1.11055, having hit a new 37-year low earlier on.

STOCKS: The FTSE 100 was last down 1.6% on the day, having traded around two-and-a-half month lows, but not all sectors were mired in the red. British homebuilders and household goods makers hit session highs, buoyed by the prospect of consumers getting tax breaks.

COMMENTS:

MICHAEL BROWN, HEAD OF MARKET INTELLIGENCE, CAXTON, LONDON:

“It seems that the bounce on higher-gilt yields was little more than a short-lived sugar rush for the pound, with the reality of higher borrowing, and a larger budget deficit now starting to sink in. The tax-cutting budget and ‘ go for broke’ growth aims are unlikely to change the longer-term bearish GBP trend.”

DAVID PAGE, HEAD OF MACRO RESEARCH, AXA INVESTMENT MANAGEMENT, LONDON:

“The market reaction is of course the most interesting. This is clearly something that suggests a significant amount of extra gilt borrowing, but at the same times it’s fiscal stimulus at a time when the Bank of England is already worried about aggregate demand being too high , and it’s highly likely to force the Bank of England to raise rates even more than we thought they were going to otherwise.

“In terms of sterling, the reaction is more interesting. If you get more fiscal stimulus and less monetary stimulus, that’s something that’s buoyant for the currency. But one also has to look at the current account deficit, which is now not going to narrow quite as much. So there is a question mark over the UK’s external position which questions the longer-term position of sterling.”

MUBIN HAQ, CHIEF EXECUTIVE, ABRDN FINANCIAL FAIRNESS TRUST:

“Today’s mini-budget delivered mini gains for those living on the margins, but maximum rewards for those with the highest incomes and significant assets. Our research shows 4.4 million households are already in serious financial difficulties and few see their prospects for being able to pay their bills improving.

“Help should have been laser focused on those hardest hit by the cost of living crisis as the economy enters recession.”

CHRIS BEAUCHAMP, CHIEF MARKET ANALYST, IG GROUP, LONDON:

“The Chancellor (and the new PM) appears to be betting the house on an economic rebound following on from his tax cuts and changes to planning. But while shareholders in housebuilders might be cheering, the new government has driven a coach and horses through the next few years of planning assumptions.

And the move to remove the top rate of tax gives Labor an easy shot at the next election, especially when the bonus cap removal is taken into account too. Gilt yields are up even in the minutes after the statement, showing that the government will have to pay more for its borrowing, a clear sign of market unease.”

TREVOR GREETHAM, HEAD OF MULTI-ASSET, ROYAL LONDON, LONDON:

“Arguably, a significant, unfunded fiscal stimulus package like this would have made economic sense after the deflationary global financial crisis, when borrowing costs were low and private sector balance sheets were deleveraging.

“Now with spare capacity non-existent, inflation at a forty year high and the Bank of England trying to cool things down, we are likely to see a political tug of war reminiscent of the stop-go 1970s. Investors should be prepared for a bumpy ride.”

Register now for FREE unlimited access to Reuters.com

Reporting by London Markets Team; Editing by Dhara Ranasinghe and Amanda Cooper

Our Standards: The Thomson Reuters Trust Principles.

.

Leave a Reply

Your email address will not be published.

BPISSUENEWS