Following Liz Truss’s defense of her economic strategy, the pound regained ground versus the dollar and the FTSE-100 recovered to be only 0.8% lower.
At 12 p.m., the value of the pound was 1.0834 dollars, compared to 1.0830 dollars at the previous closing, after sliding to $1.0763 in the early morning hours of today’s trade.
At 10 a.m., the pound was valued at 1.0795 dollars, down from 1.0830 dollars at the previous close.
At 9:45 a.m., the FTSE-100 was down 107.53 points, or -1.17%, at 6897.86, representing a decline of nearly 2%. At 12:45 p.m., the FTSE-100 index fell 57.55 points to 6947.84.
The yield on 10-year gilts climbed 16 basis points to 4.16% on Thursday, after plunging nearly 50 basis points yesterday.
The yield on ten-year gilts decreased by 50 basis points to 4.01%, and the yield on two-year gilts decreased by the same amount to 4.24%. This occurred after the Bank of England (BoE) intervened on the bond markets to prevent a new financial crisis.
The Bank of England (BoE) has pledged to purchase as many long-term government bonds (gilts) as necessary to calm markets, which have been troubled by fears that last week’s budget will send debt rising.
Lee Hardman, an analyst at MUFG, stated that the BoE’s action “clearly increased the level of concern about the possible negative economic and financial market consequences from the lack of confidence in the UK’s public finances.”
Prime Minister Liz Truss said she was willing to take ‘difficult’ steps to revive growth and felt the mini-Budget was the ‘right thing’ to do despite financial turbulence, breaking her silence after over a week of instability on the financial markets.
The pound has now recovered from an early morning decline depicted in the preceding picture.
At 9:45 a.m., the FTSE-100 was down 107.53 points, or -1.17%, at 6897.86, a decline of nearly 2% from its previous close.
In a series of appearances with local BBC radio stations on Thursday morning, she stated, “This is the proper approach we’ve devised.”
Ms. Truss responded, “I do not accept the premise of the question,” when asked if she would rescind the mini-budget that stunned markets with the magnitude of its tax cuts and government borrowing.
She continued, “We are experiencing challenging economic circumstances.” I do not dispute this. This is a worldwide issue. However, it is only appropriate that the British government has intervened and taken action during this terrible period.
In defense of her tax-cutting budget, the prime minister stated today that the government must take quick action to stimulate economic development as the yield on gilts began to increase again.
She stated on BBC local radio that the strategy was intended to improve Britain’s long-term trajectory and that she was prepared to make painful decisions to assist people and businesses through what is anticipated to be a very challenging winter.
She indicated that the government worked closely with the Bank of England.
During an interview, Ms. Truss was asked if it was time to reverse the mini-budget. She responded, “No, it’s not because…the majority of the package we presented on Friday was the help on energy for individuals and businesses, and I believe it was absolutely the right thing to do.”
She stated, “I must do what I believe is best for the country,” adding that she is willing to make difficult decisions.
Prime Minister Liz Truss continued to defend her economic plan on Thursday, stating that she was willing to adopt ‘controversial’ measures to revive economic development.
On Monday, bond yields soared and the pound plummeted to a record low of $1.0350 as speculators feared the budget would destabilize public finances.
The Bank of England took this action after the International Monetary Fund criticized the recent budget proposal, suggesting that it could exacerbate inequality and inflation.
Last week, the Chancellor of the Exchequer, Kwasi Kwarteng, unveiled a plan to slash taxes without defining the impact on the public finances or how the government would change the economy to stimulate growth.
The pound plummeted and government bond yields surged, compelling the Bank of England to relaunch its bond-buying program on Wednesday to bolster up pension funds.
Kwasi Kwarteng met with investment banks to reassure them after his tax-cutting budget alarmed investors.
Ms. Truss stated that the government must take immediate and decisive measures to shield people and businesses from rising energy costs.
Naturally, this entails making contentious and challenging choices. However, I am willing to do so as prime minister since it is my top priority to get the economy rolling.’
In response to inquiries over the fairness of the “Robin Hood” budget, she stated, “It’s not fair to have a recession… It is not fair that we will have fewer jobs in the future due to our high tax load.
Prior to her public appearances, friends said she has no intention of deviating from the economic plan outlined in Friday’s mini-Budget by Kwasi Kwarteng.
His statement that he will eliminate the 45p top rate of income tax and reduce other levies, including as corporation tax and national insurance, while increasing UK borrowing has prompted calls for his resignation or replacement.
However, Ms. Truss reportedly ruled out dismissing him less than a month after his appointment or making concessions to the financial crisis.
Investors, businesses, and consumers are currently awaiting the government’s announcement of additional specifics on how it intends to accelerate economic growth, which is essential to repairing the nation’s severely strained public finances.
Tony Danker, director-general of the Confederation of British Industry, stated, ‘Every day, every week, and every month, the government will be judged by markets and businesses on their commitment to growth and their fiscal responsibility to repay debt.’
Mark Carney, a former governor of the Bank of England, criticized the plan to slash taxes, stating that it undermined the BoE’s efforts to limit inflation and caused instability in the financial markets.
“Unfortunately, having a partial budget in these conditions – a tough global economy, a severe financial market position, and working at cross-purposes with the Bank – has led to rather big movements in financial markets,” Carney told the BBC.
Treasury Secretary Chris Philp stated that the government would continue to its plan to make a more comprehensive fiscal announcement on November 23, when it will provide additional specifics on how it will reduce debt.
However, some financial analysts suggested that the government may need to make this declaration sooner to calm the anxieties of investors.
Jonas Goltermann, senior markets economist at the consulting firm Capital Economics, stated, “I don’t think (the BoE’s intervention) will be a long-term lift for the pound, although it may avert a sharp decline.” He said that he believes further declines in the pound are probable.