Pound spikes as Kwasi Kwarteng doubles down on 'growth plan'
The pound pushed higher to $1.10 for the first time since hitting record lows earlier this week after chancellor Kwasi Kwarteng said the government was sticking with its "growth plan".
Kwarteng's comments came as prime minister Liz Truss insisted big tax cuts were the right path for the nation and refused to consider reversing the £45bn tax-cutting bonanza laid out last week.
It comes as the currency slipped sharply on Thursday after former Bank of England governor Mark Carney accused Truss of "undercutting" the UK’s financial institutions.
He said that the chancellor's mini-budget announcement of £45bn in tax cuts, without any credible plan to get borrowing back on a sustainable footing, was "working at cross-purposes with the Bank" and has caused a "dramatic" turn in financial markets.
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"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," he told the BBC.
Sterling hit an all-time low against the US dollar of $1.03 on Monday. It has been on a bumpy ride since the Bank's announcement, initially rising to $1.08, but fell yet again by as much as 1% to below $1.08.
Carney also said that the absence of scrutiny of the government’s plans by the UK’s independent forecasters, the Office for Budget Responsibility (OBR), has compounded the market woes.
He told BBC Radio Four’s Today programme: "There was an undercutting of some of the institutions that underpin the overall approach — so not having an OBR forecast is much-commented upon and the government, I think, has accepted the need for that, but that was important."
"The message of financial markets is that there is a limit to unfunded spending and unfunded tax cuts in this environment and the price of those is much higher borrowing costs for the government and mortgage holders and borrowers up and down the country."
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The Treasury has said the OBR will release a full forecast when Kwarteng announces his medium-term fiscal plan on 23 November.
The Bank of England was forced to step in to calm markets. On Wednesday it said it would buy £65bn of government bonds until 14 October to avert an economic crisis in the aftermath of the mini-budget.
Threadneedle Street conducted the first of its emergency bond-buyback operations, worth more than £1bn, as it pledged to buy billions of pounds of government debt to prevent people’s pensions being put at risk.
The emergency measure, which economists warned could fuel inflation, comes as the Bank is set to bring prices that are rising at the fastest pace in 40-years back to its 2% target.
Earlier this week, the BoE’s chief economist Huw Pill also warned that Threadneedle Street "cannot be indifferent" to the developments of the past days.
That was seen as a signal that the cost of borrowing will have to go up to protect sterling and keep a lid on inflation.
Carney's comments come a day after the International Monetary Fund and credit ratings agency Moody's also critiqued the tax-cutting plans.
The IMF openly called on the PM to reverse the decision to abolish the top rate of income tax, in a very rare attack on the economic policy of a G7 country.