British Prime Minister Liz Truss will hold a press conference later on Friday, her Downing Street office said, amid reports that her government was preparing to announce a reversal of planned tax cuts.
Her “mini budget,” presented by finance minister Kwasi Kwarteng on September 23, promised huge tax cuts and increased borrowing, sending the pound and government bonds crashing on fears that it would further juice inflation at a time when prices are already rising at their fastest rate in about 40 years.
That prompted the Bank of England to warn of a serious risk to UK financial stability and announce three separate interventions to calm a bond market meltdown that put some UK pension funds on the brink of default.
The unfunded tax cuts have been roundly criticized by investors, the International Monetary Fund, credit ratings agencies and members of Truss’ own party, some of whom are now reportedly talking about removing her just five weeks into her premiership.
Kwarteng flew back from the IMF meeting in Washington, D.C., on Friday for discussions with Truss about the plan.
“After completing a successful series of meetings at the IMF, the chancellor is returning to London today to continue work at pace on the medium-term fiscal plan,” the UK Treasury said in a statement.
As bond prices rose, the yield on 30-year UK government debt fell back to 4.3%, down from a peak of more than 5% in recent days, while the pound was last trading at $1.12. It had fallen to a record low near $1.03 on Sept. 26.
An emergency £65 billion ($73.3 billion) bond-buying program launched by the Bank of England on Sept. 28 is due to expire Friday, leaving many market participants worrying that bonds could slump again — driving mortgage rates and other borrowing costs even higher — if the government doesn’t rapidly explain how it plans to pay for the tax cuts.
Under pressure, Kwarteng has already brought forward his full budget statement to Oct. 31, more than three weeks earlier than planned. But investors may not be prepared to wait that long for reassurance about the state of Britain’s public finances.
The UK government has already ditched plans to slash the top rate of income tax, and media reports suggest it could also rethink plans to scrap an increase in business taxes.
Truss’ spokesperson denied Thursday that the government was going to do another “U-turn,” but trade minister Greg Hands said Friday “let’s wait and see” when asked the same question.
“You won’t have long to wait for the 31st of October for the chancellor to lay out those plans,” Hands said in an interview with Sky News.
