After Weeks of Turmoil, UK Markets Face Another Test on Monday

In Britain, another day of judgment in the financial markets draws closer.

Monday morning will bring the first opportunity for investors to give their verdict on the government’s rapidly changing plans for the nation’s public finances. And crucially, it will be the first trading session since the central bank ended a program that spent billions of pounds supporting the bond market through recent turbulence.

Over the weekend, Britain’s new top finance official, Jeremy Hunt, sought to reassure markets, the public and fellow members of the Conservative Party that he can restore the government’s fiscal credibility. Andrew Bailey, the governor of the Bank of England, signaled some renewed confidence in the new chancellor of the Exchequer, Mr. Hunt, saying on Saturday that they had talked and had a “meeting of minds” on fiscal sustainability.

On Friday, Prime Minister Liz Truss sought to end three weeks of financial turmoil precipitated by a bold plan, announced on Sept. 23, to cut taxes by tens of billions of pounds and significantly increase borrowing. Condemnation of this fiscal agenda, coming at a time of high inflation and rising interest rates, was swift: The pound plunged to a record low against the dollar and bond yields rose sharply, upending the Britain’s home mortgage market and causing a crisis in pension funds that led to the central bank’s intervention.

“We need to act now to reassure the markets of our fiscal discipline,” Ms. Truss said on Friday as she sacked Kwasi Kwarteng, the chancellor and close ally who delivered the plan. She also did a U-turn on a second major tax policy. Ms. Truss said she would drop plans to prevent a planned increase in the corporation tax rate, having already scrapped a plan to abolish the income tax rate for the highest earners.

Article source: https://www.nytimes.com/2022/10/16/business/british-financial-market-pound.html