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☆ 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.

☆ BoE’s insurance policy raises question of next act
▼ + stars: | 2022-10-10 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 10 (Reuters Breakingviews) - The Bank of England is taking out insurance against a market meltdown. On Monday, the central bank said it was ready to double the daily limit of its bond-buying programme from 5 billion pounds to 10 billion pounds. This will cost users just 15 basis points above the base rate, although they face haircuts of up to 42%. (By Aimee Donnellan)Register now for FREE unlimited access to Reuters.com RegisterFollow @Breakingviews on Twitter(The author is a Reuters Breakingviews columnist. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

☆ Morning Bid: Dollar feeds on stress
▼ + stars: | 2022-10-10 | by ( ) www.reuters.com time to read: +3 min

And as a fourth 75 basis-point Fed rate hike is now fully priced yet again, the dollar's DXY index climbed again - and traders started to eye year-end trading stress too. read more read moreWith last week's warning from Advanced Micro Devices (AMD.O) and Micron Technology (MU.O) ringing in the ears, the chip sector shivered into the new week. The measures could amount to the biggest shift in U.S. policy on exporting technology to China since the 1990s. Returning after a week of closures, the broad Shanghai stock index was down 1.6%, Hong Kong was down almost 3% and the offshore yuan weakened against the dollar. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Banks are finding the home loan market stacked in their favour after years of low mortgage rates, but are also aware that bigger mortgage bills could spell trouble for cash-strapped customers. But the higher rates will hit borrowers hard. Mortgage payments as a proportion of gross household income were on average around 20% in June, according to BuiltPlace, a property market consultancy. They could rise to around 27% - the highest since the early 1990s - if mortgage rates were to rise to 6%, the consultancy said. The rise in mortgage rates will be a blow for millions of households' finances, Sue Anderson, head of media at debt charity StepChange said.

☆ UK's Kwarteng heads for Washington under pressure from IMF
▼ + stars: | 2022-10-10 | by ( William Schomberg | ) www.reuters.com time to read: +4 min

On Sept. 23, Kwarteng made his first fiscal announcement including a controversial plan to scrap Britain's top income tax rate for the highest earners, part of a package of measures he said would speed up sluggish economic growth. Last week, a rebellion within the ruling Conservative Party forced Kwarteng and Truss to drop the idea of scrapping the 45% top rate of tax. "If Kwarteng decides to lecture back, let alone publicly dissent from the G7 consensus, then things will go very badly for him," Posen, a former BoE rate-setter, said. The BoE said on Monday it was taking further steps to ensure the emergency bond-buying scheme concludes smoothly on Friday. Register now for FREE unlimited access to Reuters.com RegisterAdditional reporting by Howard Schneider in Washington Writing by William Schomberg Editing by Catherine EvansOur Standards: The Thomson Reuters Trust Principles.

LONDON, Oct 10 (Reuters) - Britain's government on Monday named an experienced Treasury official as the finance ministry's new top civil servant, after unsettling investors last month by abruptly ousting his predecessor. He replaces Tom Scholar whose departure shortly after Kwasi Kwarteng became finance minister contributed to a drop in confidence among investors since Liz Truss took over as prime minister. The removal of Scholar broke the British convention that non-partisan officials remain in post after a change of political leadership. It came shortly before Kwarteng announced a string of unfunded tax cuts that caused turmoil in financial markets. Bowler's appointment came as a surprise after newspapers last week reported that Truss wanted someone new to the Treasury to take the department's top job.

Mel Stride, a lawmaker who chairs the Treasury Committee in the lower house of parliament and had criticised Scholar's departure, said the appointment would help reassure investors. The moves came as Kwarteng prepared to head to Washington this week with International Monetary Fund criticisms of Britain's new policy direction ringing in his ears. British Chancellor of the Exchequer Kwasi Kwarteng speaks during Britain's Conservative Party's annual conference in Birmingham, Britain, October 3, 2022. Kwarteng said the new date for his medium-term fiscal statement would give the independent Office For Budget Responsibility (OBR) enough time to carry out a full forecast. The new date for the fiscal plan leaves Kwarteng and Truss with little more than two weeks to settle divisions in her cabinet over cuts to government spending.

☆ How a sleepy corner of the market nearly triggered a meltdown
▼ + stars: | 2022-10-08 | by ( Julia Horowitz | ) edition.cnn.com time to read: +8 min

London CNN Business —Pension funds are designed to be dull. The scale of the tumult put enormous pressure on many pension funds by upending an investing strategy that involves the use of derivatives to hedge their bets. “It started to feed itself,” said Ben Gold, head of investment at XPS Pensions Group, a UK pensions consultancy. Yields on longer-term bonds have dropped sharply, giving pension funds time to recoup — though they’ve recently started to rise again. Still, Kenneth is concerned that if the program ends next week as scheduled, the task won’t be complete given the complexity of many pension funds.

☆ Mortgage mayhem sparks fears of a housing market crash in Britain
▼ + stars: | 2022-10-04 | by ( Elliot Smith | ) www.cnbc.com time to read: +3 min

U.K. mortgage rates have skyrocketed since Finance Minister Kwasi Kwarteng's mini-budget on Sept. 23, prompting banks to pull mortgage products threatening a deepen an expected housing market downturn. Dan Kitwood | Getty ImagesLONDON — There are growing fears of a housing market crash in the U.K., after a swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers. Economist Andrew Goodwin suggested that there could be more pain ahead — particularly when it comes to the housing market. A number of banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates. Interest rate expectationsLooking ahead, whether the fixed rates on mortgages remain elevated or begin to moderate will depend on the trajectory of interest rates expectations.

LONDON — British Prime Minister Liz Truss on Monday ditched her signature plan to cut taxes for the country's top earners after it triggered market turmoil and a huge domestic outcry. The pound rose after the announcement to around $1.12 — about the value it held before the Sept. 23 budget announcements. The dramatic reversal comes just hours after Truss defiantly defended the tax cut and her broader radical economic agenda, saying it was necessary to solve the country’s long-term economic woes. Faced with a growing political rebellion after days of economic chaos, the government said early Monday it was abandoning the plan. The plan to cut taxes for the wealthy was part of a broader "mini-budget" announced soon after the new administration took office.

☆ What do tax cuts and market chaos mean for young Brits? 3 experts give their advice
▼ + stars: | 2022-10-03 | by ( Sophie Kiderlin | ) www.cnbc.com time to read: +4 min

His plan includes widespread tax cuts, fewer rules and regulations for businesses and the removal of a cap on bonuses for bankers. Google searches like "do the tax cuts help me" skyrocketed, while outrage was rife on social media. Do the tax cuts equal more cash in hand? The majority of first-time buyers fall below this threshold and therefore won't benefit from the cuts, Jobson said. "The change mainly benefits high-earning first-time buyers and those with sufficient backing from the bank of mum and dad," he added.

☆ Ex-BoE boss Carney says UK tax cuts under-cutting BoE inflation fight
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +1 min

Mark Carney attends a news conference at the Bank Of England in London, March 11, 2020. Peter Summers/Pool via REUTERSLONDON, Sept 29 (Reuters) - Former Bank of England governor Mark Carney criticized the new British government's plan to cut taxes for under-cutting the attempts of the central bank to curb inflation and sowing chaos in financial markets. "Unfortunately having a partial budget, in these circumstances - tough global economy, tough financial market position, working at cross-purposes with the Bank - has led to quite dramatic moves in financial markets," Carney told the BBC in an interview broadcast on Thursday. The pound sank and British government bond yields soared, forcing the BoE to revive its bond-buying programme in an emergency move on Wednesday to shore up pension funds. read moreRegister now for FREE unlimited access to Reuters.com RegisterWriting by William Schomberg; Editing by Kate HoltonOur Standards: The Thomson Reuters Trust Principles.

☆ The UK is gripped by an economic crisis of its own making
▼ + stars: | 2022-09-29 | by ( Mark Thompson | ) edition.cnn.com time to read: +8 min

“While this is welcome, the fact that it needed to be done in the first place shows that the UK markets are in a perilous position,” said Paul Dales, chief UK economist at Capital Economics, commenting on the bank’s intervention. “It wouldn’t be a huge surprise if another problem in the financial markets popped up before long,” Dales added. The UK government should also postpone its tax cuts, El-Erian said. We look like reckless gamblers who only care about the people who can afford to lose the gamble,” one former Conservative minister told CNN. “Truss and Kwarteng are now facing a severe economic crisis as the world’s financial markets wait for them to make policy changes that they and the Conservative party will find unpalatable,” the Eurasia analysts wrote.

LONDON, Sept 29 (Reuters) - British Prime Minister Liz Truss broke her silence on Thursday following nearly a week of chaos in financial markets triggered by her plans for tax cuts, saying she was willing to take "controversial" decisions to reignite growth. Register now for FREE unlimited access to Reuters.com Register"But I'm prepared to do that as prime minister because what's important to me is that we get our economy moving." Truss became prime minister on Sept. 6 after winning the leadership of the governing Conservative Party with promises to cut taxes. "This is the right plan that we've set out," Truss said, adding it would put Britain's economy on a better trajectory for the long term. Some financial analysts have said the government might have to bring forward that announcement to settle the nerves of investors.

☆ UK Treasury minister rejects IMF concern over tax-cutting budget
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +1 min

LONDON, Sept 29 (Reuters) - Chris Philp, Britain's chief secretary to the Treasury, said he disagreed with concerns raised by the International Monetary Fund about the government's tax-cutting budget that has roiled markets, saying it would lead to long-term economic growth. "I saw the IMF comments. Register now for FREE unlimited access to Reuters.com RegisterThe pound sank and British government bond yields soared, forcing the BoE to revive its bond-buying programme in an emergency move on Wednesday to shore up pension funds. Asked if the government regretted its handling of the economy, Philp said interest rates had been rising around the world in response to Russia's invasion of Ukraine. Register now for FREE unlimited access to Reuters.com RegisterReporting by Kate Holton and Muvija M Editing by William SchombergOur Standards: The Thomson Reuters Trust Principles.

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.

Yet the government’s unfunded mini-budget on Sept. 23 stoked fears of runaway inflation, causing gilt yields to soar. The mess left pension funds scrambling to raise margin, and they wound up doing so by selling their most liquid asset – gilts. And the more the pension funds sold, the more gilt prices fell, causing a vicious spiral and fears the funds could run out of cash. By the time Governor Andrew Bailey intervened, certain pension funds had been hit with margin calls as high as 100 million pounds. Ahead of the BoE’s announcement, strategists said the 2.1 trillion pound gilt market was seizing up, with very poor liquidity and pricing quality being a clear sign of market dysfunction.

☆ UK's Truss presses on with 'controversial' economic plan, says it's the right course
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +1 min

LONDON, Sept 29 (Reuters) - British Prime Minister Liz Truss defended her economic plan that has roiled financial markets, saying on Thursday she was willing to take "controversial" steps to reignite growth and would not reverse course despite the turmoil. "This is the right plan that we've set out," she said in a series of interviews with local BBC radio stations. Register now for FREE unlimited access to Reuters.com Register"We are facing difficult economic times. But what is absolutely right is the UK government has stepped in and acted at this difficult time." But I'm prepared to do that as prime minister because what's important to me is that we get our economy moving."

☆ Pension fund panic led to Bank of England's emergency intervention: Here's what you need to know
▼ + stars: | 2022-09-29 | by ( Elliot Smith | ) www.cnbc.com time to read: +7 min

A central narrative emerging from the U.K.'s precarious economic position is the apparent tension between a government loosening fiscal policy while the central bank tightens to try to contain sky-high inflation. Monetary policy is trying to mop-up after the milk was spilt," Turner said. Anything less, and there will likely be more turbulence for the gilt market, and the pound, in the coming weeks," he added. Following the Bank's bond market intervention, ING's economists expect a little more sterling stability, but noted that market conditions remain "febrile." She suggested the market would have benefitted from the government "blinking first" in the face of the market backlash to its policy agenda, rather than the central bank.

☆ The UK's abrupt tax cuts are sowing market chaos — and putting policymakers in a no-win situation that threatens economic crisis
▼ + stars: | 2022-09-29 | by ( Ben Winck | ) www.businessinsider.com time to read: +7 min

The UK government's plan to slash taxes and stimulate economic growth has backfired spectacularly. The episode risks lifting inflation higher still and levying new economic pain on all Britons. What was introduced as an effort to boost the UK's economic growth is backfiring to an extraordinary degree. The blowback could range from a weaker British pound to a government default, even higher inflation, higher unemployment, a bigger wealth gap, and a crippling recession. According to Chancellor Kwasi Kwarteng, the aim was to lift the struggling UK economy and cut the risk of a near-term downturn.

☆ Sterling drops 1% as PM Truss defends economic plans
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +2 min

LONDON, Sept 29 (Reuters) - Sterling fell as much as 1% on Thursday after British Prime Minister Liz Truss defended economic plans that have triggered chaos in the country's markets. Truss said big tax cuts were the right path for Britain and refused to consider reversing the so-called "mini budget" laid out last week. Sterling bounced on Wednesday to close at $1.0877 as investors digested the BoE's plans. However, it resumed its long-running slide on Thursday as Truss came out to defend her government's policies. Register now for FREE unlimited access to Reuters.com RegisterReporting by Harry Robertson; Editing by Angus MacSwanOur Standards: The Thomson Reuters Trust Principles.

☆ U.K. Markets Turmoil Puts Spotlight on New Chancellor Kwasi Kwarteng
▼ + stars: | 2022-09-28 | by ( Max Colchester | ) www.wsj.com time to read: 1 min

Kwasi Kwarteng, Britain’s chancellor of the exchequer, delivering his budget plan last week in the House of Commons. LONDON— Kwasi Kwarteng was just two weeks into his job as U.K. chancellor of the exchequer when he unveiled a bold plan to reshape the British economy by slashing taxes in what he called “a new approach to a new era.”Skeptical lawmakers in Britain’s Parliament now have a different moniker for the package: the “Kami-kwasi budget.”

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE warned. One source at the Treasury said Kwarteng would not resign, and the government would not reverse its policy. A second person familiar with the situation said Truss still backed Kwarteng and they would announce further economic reforms soon. One source at the meeting said Kwarteng had asked the assembled finance bosses what they could do to calm markets. U.S. bond giant PIMCO said it would have less confidence in sterling than it did before last Friday's announcement.

"The mortgage crisis is going to be bigger than energy now," said Richard Murphy, professor of accounting practice at Sheffield University, warning of a drop in house prices that could leave many with debt greater than the value of their home. This comes on top of a cost of living crisis driven by rising food and energy prices which is already biting many hard. CALL FOR CALMBeyond the immediate squeeze this will have on consumers' ability to spend, rising borrowing costs also have the potential to send the years-long house market rally into reverse: HSBC analysts predict house price falls of 7.5% into next year. Some top mortgage lenders are calling for calm, stressing they are still signing mortgage deals and that the pullback in lending among smaller rivals is in no way indicative of a broader, exodus of lenders from the mortgage market. Chris Huddleston, chief executive of international brokerage company FXD Capital, said he expected the mortgage market to remain in limbo in coming weeks as investors watch currency markets and how the Bank of England reacts.

LONDON — If anyone thought Britain was due a period of calm after Boris Johnson’s tumultuous premiership, no one told his successor. But the proposed solution by new Prime Minister Liz Truss has quickly sent the economy spiraling into chaos, threatening consequences both immediate and long-lasting for many Britons. Prime Minister Liz Truss's government unveiled a financial plan last week that sparked market concern and public criticism. The nose-diving pound will also make everyday products in Britain more expensive as importers face spiraling costs. It wants to supercharge Britain’s sluggish economy by any means necessary — even if that means short-term shocks.

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