UK Chancellor of the Exchequer reveals ‘mini-budget’

UK Chancellor of the Exchequer reveals ‘mini-budget’

UK Chancellor of the Exchequer Kwasi Kwarteng walks outside Downing Street in London, UK, Sept. 23, 2022. REUTERS/Clodagh Kilcoyne

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LONDON, Sept. 23 (Reuters) – Britain’s Chancellor of the Exchequer Kwasi Kwarteng on Friday unveiled a wide range of measures aimed at cutting taxes and energy bills for households and businesses to try to boost economic growth. read more

UK Treasury yields rose as the UK Debt Management Office planned additional issuance to fund planned spending, although the pound eased past losses and pulled from its 37-year low against the dollar.

UK blue chip stocks (.FTSE) remained in the red, in line with a broader decline in the stock market.

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MARKET RESPONSE:

INVENTORIES: The FTSE 100 last fell 0.9% on the day after trading as low as about two and a half months, but not all sectors were in the red. British homebuilders and homeware manufacturers hit record highs, buoyed by the prospect of consumers getting tax breaks.

BONDS: Two-year government bond yields rose almost 25 basis points to 3.76%, around the highest level since the financial crisis in 2008/2009.

FOREX: Sterling was down 0.5% to around $1,1195 on the day, but managed to trim past losses. It previously traded at a session low of $1.11520, the weakest since mid-1985.

COMMENTS:

MICHAEL BROWN, HEAD OF MARKET INTELLIGENCE, CAXTON, LONDON:

“It’s such a rabbit out of the hat, after all, that not only will the extra rate be abolished completely, but also the cut in the base rate of income tax will be brought forward by a year (which moves sterling). That’s pretty important.”

“The movement of the pound is a function of two things. One is the diminishing downward effects on growth prospects. People will have more money to spend.”

“Then there’s the fact that government bond yields are up about 20 basis points after the announcement. That’s because more borrowing is needed, but it’s narrowing the gap between places like the US.”

“However, I don’t see this as a longer-term signal to go long in sterling.”

TREVOR GREETHAM, HEAD MULTI-ASSET, ROYAL LONDON, LONDON:]

“Undoubtedly, a significant, unfunded fiscal stimulus package like this would have made economic sense after the deflationary global financial crisis, when borrowing costs were low and private sector balance sheets were winding down.

“With no spare capacity, inflation at its 40-year high and the Bank of England trying to cool things down, we’re likely to see a political tug-of-war reminiscent of the stop-go 1970s. Investors should be prepared for a bumpy ride.”

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