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And futures now assume the inflation fight will fall solely on the BoE and expect it to triple policy rates to as high as 5.8-6% next year. On Tuesday, the independent Institute for Fiscal Studies said Kwarteng needed 62 billion pounds ($68.22 billion) of spending cuts to keep public debt sustainable over time, with borrowing this year on course for 194 billion pounds and still above 100 billion by 2026/27 - over 70 billion higher than OBR forecasts in March. QE involves the purchase of mostly gilts from commercial banks in return for interest-bearing reserves at the central bank. And, unlike other major central banks, the BoE policy rate itself is the rate paid on those bank reserves. NIESR last year urged a solution to the problem whereby Treasury and central bank reduced the maturity mismatch by swapping longer-dated gilts back to Treasury to cut duration of its portfolios.

☆ Bank of England warns risks to UK financial stability haven't gone away
▼ + stars: | 2022-10-11 | by ( Mark Thompson | ) edition.cnn.com time to read: +4 min

A slump in UK government bonds that promise to protect investors from inflation — known as index-linked gilts — was the latest source of risk, it said. “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” it said in a statement. Starting Tuesday, the Bank of England will include index-linked gilts in its emergency £65 billion ($71.7 billion) bond-buying program announced on Sept. 28. The market meltdown began after Prime Minister Liz Truss’ government unveiled £45 billion in unfunded tax cuts on Sept. 23. And with monetary and fiscal policy now working in opposite directions, we think the broader risks around UK monetary [and] financial stability are growing,” he added.

☆ The Bank of England should extend its emergency bond-buying to manage the volatility that's rocked the country's debt market, UK pensions group says
▼ + stars: | 2022-10-11 | by ( Carla Mozée | ) www.businessinsider.com time to read: +4 min

A UK pensions trade group on Tuesday called on the Bank of England to continue its emergency bond-buying operations to manage volatility in the debt market. The central bank began its bond-market intervention last month as fears of a UK financial crisis risked damaging investments held by pension funds. The BoE is expected to continue purchasing long-dated UK bonds until Friday under its £65 billion intervention aimed at stemming a massive sovereign debt sell-off. The BoE last week said $1 trillion in UK pension funds' investments could have been lost if it didn't intervene with its emergency bond purchases. The group said pension funds over the last couple of weeks have, among other actions, taken steps to strengthen their financial resilience.

☆ BoE drawn into risky game of financial whac-a-mole
▼ + stars: | 2022-10-11 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

On Tuesday, the UK central bank said it would buy more bonds to avert a fire sale by pension funds. But its plan to end such support on Friday is hampered by a distressed bond market, and wayward government. Prime Minister Liz Truss’s unfunded plan to cut taxes had triggered a surge in government bond yields, which in turn forced indebted pension funds to sell assets. Register now for FREE unlimited access to Reuters.com RegisterThere are plenty of signs that the bond market remains distressed. Without a credible fiscal strategy, investors may continue to steer clear of UK gilts.

☆ Morning Bid: British bond burn
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +5 min

read moreAhead of the open, 10-year U.S. Treasury yields were again flirting with the year's highs above 4% and global stocks (.MIWD00000PUS) were heading for new 2022 lows. Key developments that should provide more direction to U.S. markets later on Tuesday:* U.S. Sept NFIB small business index. * International Monetary Fund publishes World Economic Outlook and Global Financial Stability Report at annual IMF/World Bank meeting in Washington. * Bank of England Governor Andrew Bailey, BoE deputy governor Jon Cunliffe, Swiss National Bank chief Thomas Jordan, European Central Bank chief economist Philip Lane, ECB board member Fabio Panetta, ECB bank supervisor Andrea Enria speak in United States. Long Gilt Yields SoarRegister now for FREE unlimited access to Reuters.com RegisterBy Mike Dolan, editing by Ed Osmond, <a href="mailto:mike.dolan@thomsonreuters.com" target="_blank">mike.dolan@thomsonreuters.com</a>.

☆ UK needs 62 billion pounds of cuts or tax rises to tame debt - IFS
▼ + stars: | 2022-10-10 | by ( David Milliken | ) www.reuters.com time to read: +4 min

Interest rates for new long-term government borrowing leapt to a 20-year high last month, after Kwarteng announced 45 billion pounds of unfunded tax cuts, on top of even greater short-term support for households' and businesses' energy bills. "The Chancellor should not rely on over-optimistic growth forecasts or promises of unspecified spending cuts. British government borrowing looks on course to hit 194 billion pounds this financial year and to still be 103 billion pounds in 2026/27 - 71 billion more than government forecasters predicted in March, the IFS said. COSTLY DEBTDebt interest would cost 106 billion pounds this year and 103 billion pounds in 2023/24, the IFS predicted, due to the large amount of finance raised in years gone by through issuing bonds that pay interest that rises as inflation goes up. "Such spending cuts could be done, but would be far from easy," the IFS said.

☆ UK needs 62 billion pounds of cuts or tax rises to tame debt -IFS
▼ + stars: | 2022-10-10 | by ( David Milliken | ) www.reuters.com time to read: +4 min

A source at the Treasury said Kwarteng had no plans to resign or reverse any policies. DO THINGS DIFFERENTLYBritain's first Black Chancellor, Kwarteng is the son of Ghanaian immigrants. In Kwarteng, Truss picked a key ideological ally with whom she co-wrote a book that spells out a low tax, small state, deregulated vision of Britain. One other aspect that raised investor ire was Kwarteng's decision to release a fiscal plan without the accompanying scrutiny of the independent Office for Budget Responsibility. Kwarteng will set out a medium term fiscal plan alongside OBR forecasts on the scale of government borrowing on Nov. 23.

☆ Britain’s Sketchy Growth Plan Is Scarier Than Its Bond Vigilantes
▼ + stars: | 2022-09-26 | by ( Jon Sindreu | ) www.wsj.com time to read: +1 min

A big selloff in gilts points to worries about too much supply, and to the possibility that the BOE could raise borrowing costs even faster than expected. The expansive, expensive economic policy of new U.K. Prime Minister Liz Truss has revived fears of “bond vigilantes.” But the turmoil in financial markets may have more to do with the plan’s unclear return on investment than its hefty borrowing requirements. On Monday, sterling dropped to a record low against the U.S. dollar in overnight trading before rebounding slightly. Investors already expected Ms. Truss’s new government to spend north of £150 billion, equivalent to $163 billion, to freeze energy bills, but on Friday her Treasury chief, Kwasi Kwarteng , paired this with the most sweeping tax cuts since 1972, according to the independent Institute for Fiscal Studies, as well as totemic measures such as scrapping a cap on bankers’ bonuses. The total package will cost £291 billion, or a colossal 12.6% of gross domestic product, over the next five years, according to estimates by UBS economist Anna Titareva .

☆ The rich are the biggest winners of Britain's tax-cutting gamble
▼ + stars: | 2022-09-26 | by ( Anna Cooban | Cnn Business | ) edition.cnn.com time to read: 1 min

London (CNN Business) The United Kingdom's big tax-cutting gamble to boost economic growth will benefit the rich far more than millions of people on lower incomes. On Friday, UK finance minister Kwasi Kwarteng announced a bumper set of tax cuts , including scrapping the top rate paid by the highest earners, and reductions in duties paid on house purchases. The UK Treasury estimates that the cuts will wipe £45 billion ($48 billion) off annual government revenues over the next five years. That's the biggest tax cut in half a century, according to the Institute for Fiscal Studies. Kwarteng slashed the top rate of income tax — paid by those earning over £150,000 ($161,327) — to 40% from 45%.

☆ Pound tanking, massive tax cuts and talk of emergency hikes. Here's what's going on in the UK
▼ + stars: | 2022-09-26 | by ( Elliot Smith | ) www.cnbc.com time to read: +6 min

Jim O'Neill, former Goldman Sachs Asset Management chairman and a former U.K. Treasury minister, said the pound's fall shouldn't be misinterpreted as dollar strength. The announcement Friday featured a volume of tax cuts not seen in Britain since 1972 and an unabashed return to the "trickle-down economics" promoted by the likes of Ronald Reagan and Margaret Thatcher. The radical policy moves set the U.K. at odds with most major global economies against a backdrop of sky-high inflation and a cost-of-living crisis. Ibrahim added that this would imply further suffering for U.K. financial markets due to the "unfavorable policy mix" over the near term. The British lender expects the government to clarify its plans to balance the books through "spending cuts and reform outcomes" ahead of the November budget statement, which Montagne suggested "should help to deflect immediate concerns relating to large unfunded tax cuts."

☆ UK tax cuts will benefit the rich more than anyone else
▼ + stars: | 2022-09-26 | by ( Anna Cooban | ) edition.cnn.com time to read: +3 min

On Friday, UK finance minister Kwasi Kwarteng announced a bumper set of tax cuts, including scrapping the top rate paid by the highest earners, and reductions in duties paid on house purchases. That’s the biggest tax cut in half a century, according to the Institute for Fiscal Studies. Kwarteng slashed the top rate of income tax — paid by those earning over £150,000 ($161,327) — to 40% from 45%. Kwarteng also announced he would accelerate a plan to cut the basic rate of income tax from 20% to 19%. ‘More to come’Kwarteng told the BBC on Sunday that his tax cuts “favor people right across the income scale.”“We’ve actually put more money into people’s pockets,” he told the broadcaster.

REUTERS/Toby MelvilleLONDON, Sept 23 (Reuters) - Britain's new economic agenda of tax cuts and high spending do not represent a gamble because improved economic growth will pay for it, cabinet minister Simon Clarke said ahead of a major fiscal announcement on Friday. Close to 200 billion pounds ($225 billion) of tax cuts, energy subsidies and planning reforms are due to be announced by new finance minister Kwasi Kwarteng as part of Prime Minister Liz Truss's bid to spur growth. "The critical thing is we need to get the economy growing so that, frankly, the economic growth trajectory outstrips that of our debt." Truss has aspirations to double the long-run rate of British annual economic growth to 2.5%. Clarke said the metrics of success would be in improved economic growth.

☆ The curious case of falling gold prices
▼ + stars: | 2022-09-23 | by ( Julia Horowitz | Cnn Business | ) edition.cnn.com time to read: +7 min

But gold prices haven't surged. "Investors don't have much appetite to hold gold in the current environment," Warren Patterson, head of commodities strategy at ING, told me. Breaking it down: Gold prices skyrocketed in early March as fears about the consequences of Russia's invasion of Ukraine mounted. A stronger currency makes it more expensive for foreign investors to buy in, and can reduce demand, pushing down prices. In the meantime, Costco plans to leverage its size to stay competitive on prices and keep growing sales.

☆ Premarket stocks: The curious case of falling gold prices
▼ + stars: | 2022-09-23 | by ( Julia Horowitz | ) edition.cnn.com time to read: +7 min

But gold prices haven’t surged. “Investors don’t have much appetite to hold gold in the current environment,” Warren Patterson, head of commodities strategy at ING, told me. Breaking it down: Gold prices skyrocketed in early March as fears about the consequences of Russia’s invasion of Ukraine mounted. A stronger currency makes it more expensive for foreign investors to buy in, and can reduce demand, pushing down prices. In the meantime, Costco plans to leverage its size to stay competitive on prices and keep growing sales.

☆ New UK finance minister Kwarteng seeks end to 'cycle of stagnation'
▼ + stars: | 2022-09-23 | by ( David Milliken | ) www.reuters.com time to read: +4 min

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said Truss and Kwarteng's tax cuts could be the largest since 1988, and risked putting Britain's public debt on an unsustainable path. The IFS, together with U.S. bank Citi, estimate household energy subsidies will cost about 120 billion pounds over two years, while six months of business energy subsidies will cost 40 billion pounds. read moreThese are a one-off, and the bigger concern for the IFS is around 30 billion pounds of permanent tax cuts - starting with 14 billion pounds in reduced payroll taxes, confirmed on Thursday, and 15 billion pounds of cuts to corporation tax. For Kwarteng, tax cuts and deregulation are a way to end what he calls "a cycle of stagnation" that led to tax rates being on course for their highest level since the 1940s. "We will liberalise planning rules in specified agreed sites, releasing land and accelerating development," Kwarteng is expected to say.

British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit Berkeley Modular, in Northfleet, Kent, Britain, September 23, 2022. The pound crashed below $1.09 for the first time since 1985 and British government bonds suffered the biggest daily fall in decades. "I've rarely seen an economic policy that is as uniformly panned by economic experts and financial markets," said Harvard professor Jason Furman, former chair of the U.S. Council of Economic Advisers during Barack Obama's presidency. Britain's Institute for Fiscal Studies compared Kwarteng's statement to a budget in 1972 that similarly sought to double Britain's rate of economic growth, but is widely remembered as a disaster for its inflationary effect. Furman said Truss might also have no choice but to undo some of her plans if Britain's debt problems start to spiral because of higher interest rates.

☆ UK's mini budget slashes taxes and borrows heavily as recession hits
▼ + stars: | 2022-09-23 | by ( Anna Cooban | ) edition.cnn.com time to read: +4 min

London CNN Business —A huge gamble by the UK government aimed at rescuing the economy from recession and boosting long-term growth sent the pound plunging on Friday. Paul Johnson, director of the Institute for Fiscal Studies, an independent think tank, called the government’s plans “extraordinary.”“It’s half a century since we’ve seen tax cuts announced on this scale,” he said in a tweet. The pound sank almost 2% to $1.10 on Friday after Kwarteng’s announcement to its lowest level since 1985. The measures come a day after the Bank of England warned that the country was already likely in a recession. ‘Unfunded giveaways’News of the heavy additional government borrowing rattled investors already concerned that the country is spending beyond its means.

British Pound Sterling and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. Income tax cuts, a drop in property taxes, tax-free shopping for overseas visitors and the scrapping of a planned corporation tax rise are all aimed by the government at giving households and businesses a boost. It was last down 1.36% against the dollar at 1.1106 , a new low since 1985. The FTSE 100 (.FTSE) dropped 1.3%, hitting its weakest level since July 15, but shares in UK homebuilders jumped after Kwarteng announced changes to property stamp duty. Register now for FREE unlimited access to Reuters.com RegisterReporting by Alun John Editing by Alexander Smith and Frances KerryOur Standards: The Thomson Reuters Trust Principles.

☆ British pound plunges below $1.11 after new government announces tax cuts
▼ + stars: | 2022-09-23 | by ( Jenni Reid | ) www.cnbc.com time to read: +2 min

The Bank of England said Thursday that the U.K. economy was likely already in a recession as it raised interest rates by 50 basis points. The pound has been on a precipitous fall against the greenback this year, hitting levels this month not seen since 1985. The embattled British pound fell 1.95% Friday against the dollar, after the new U.K. government announced a radical economic plan in a bid to boost growth. "The obvious implication is that BOE rates are likely to be higher for longer than they would have been otherwise. While textbooks suggest that higher short-term interest rates should be currency supportive, GBP has been demonstrating since the spring that this is not always thecase," she said in a note.

☆ UK government dishes out extensive tax cuts as country braces for recession
▼ + stars: | 2022-09-23 | by ( Jenni Reid | ) www.cnbc.com time to read: +3 min

LONDON — The new U.K. government announced a sweeping program of tax cuts and investment incentives Friday, as Prime Minister Liz Truss seeks to boost the country's faltering economic growth. The energy support package is expected to cost more than £100 billion ($111 billion) over two years. The Institute for Fiscal Studies, an economic research group, said the reversal in the income tax rise and canceling the planned rise in corporation tax would lead to a £30 billion reduction in taxation revenue. It added that "setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best." Groups including the opposition Labour party argue that the tax cuts will disproportionately benefit the wealthy.

☆ Breakingviews: UK growth requires an even less popular Liz Truss
▼ + stars: | 2022-09-23 | by ( Aimee Donnellan | ) www.reuters.com time to read: +4 min

LONDON, Sept 23 (Reuters Breakingviews) - In her early days as prime minister, Liz Truss has had two mantras. As expected, Kwarteng reversed a planned hike in national insurance rates, costing around 17 billion pounds per year. The whole package will cost 45 billion pounds by 2027, while the government is also spending 60 billion pounds capping household and business energy bills. Support for household energy bills announced by Truss will cost 60 billion pounds for the next six months, Kwarteng said. Tax cuts would cost a further 45 billion pounds by 2026-2027, according to UK finance ministry costings.

☆ New UK finance minister Kwarteng seeks end to "cycle of stagnation"
▼ + stars: | 2022-09-22 | by ( David Milliken | ) www.reuters.com time to read: +4 min

☆ Interest rates: Bank of England hikes by half a point for second straight month
▼ + stars: | 2022-09-22 | by ( Mark Thompson | ) edition.cnn.com time to read: +2 min

London CNN Business —The Bank of England announced its seventh interest rate hike in less than a year on Thursday as it battles the highest level of inflation of any G7 economy. The central bank repeated last month’s hike of half a percentage point, taking rates to 2.25% from 1.75%. The US Federal Reserve on Wednesday announced an historic third consecutive three-quarter percentage point rise in interest rates, adding further wind to the dollar’s sails. The European Central Bank also broke new ground with its decision earlier this month to hike eurozone interest rates from 0% to 0.75%. The Swiss National Bank on Thursday hiked rates by three quarters of a percentage point, taking them out of negative territory to 0.5%.

☆ UK tax cuts risk 'unsustainable' debt rise - think tank
▼ + stars: | 2022-09-21 | by ( ) www.reuters.com time to read: +2 min

REUTERS/David 'Dee' DelgadoLONDON, Sept 21 (Reuters) - Prime Minister Liz Truss's plans to cut payroll taxes and reverse a planned increase in corporation tax risk putting Britain's national debt on an unsustainable upward path, the Institute for Fiscal Studies think tank said on Wednesday. Truss promised the tax cuts, worth around 30 billion pounds a year, as part of her successful campaign for the Conservative Party leadership, along with a temporary subsidy for household energy bills that will cost around 100 billion pounds. Register now for FREE unlimited access to Reuters.com Register"Reversing National Insurance Contributions and corporation tax rises would leave debt on an unsustainable path," it said. The IFS said there was little guarantee that permanent tax cuts would create enough growth to pay for themselves. "There is no miracle cure, and setting plans underpinned by the idea that headline tax cuts will deliver a sustained boost to growth is a gamble, at best," it said.

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