Both the British government and the Bank of England announced new measures on Monday to try to calm investors panicked by last month’s massive budget proposal, but markets remain skeptical, AFP reported.
Due to repeated requests from economists and parliamentarians, Chancellor Kwasi Kwarteng postponed the release of the budget to October 31 instead of November 23, as originally planned.
In parallel, he will unveil medium-term measures to ensure that the UK’s public finances remain on a sustainable path.
The Bank of England also announced new measures to provide liquidity to the long-term UK Treasury bond market, which has been hit by the Kwasi Kwarteng budget fiasco at the end of September.
But investors appeared unsettled by the yield on 30-year government bonds, which rose steadily during Monday’s session to reach 4.68 percent around 4pm GMT, reflecting a lack of confidence in British debt.
Unresolved issues
Although the chancellor and the Bank of England redoubled efforts on Monday, “the fundamental problems have not been resolved,” said Ken Wattret, director of European economics at S&P Global Market Intelligence.
The improvement in forecasts is “to be welcomed, but there is likely to be a big financial hole”, he added, and the intervention of the Bank of England in this context is tantamount to “putting a Band-Aid on a wound without healing it”.
On September 23, Kwasi Kwarteng unveiled massive subsidies on electricity bills to tackle the cost-of-living crisis, as well as major tax cuts aimed mainly at the wealthiest households.
The package has not been valued, but economists put it at an impressive £100bn to £200bn.
With no austerity measures planned, it had to be financed entirely by borrowing from the markets at a time of soaring interest rates, with very high inflation in the UK of almost 10%, the highest in the G7.
Investors began to doubt the government’s ability to repay its debt and sold off British assets, sending sterling to an all-time low and London’s long-term borrowing rates rising.
Photo: Dreamstime
Source: Hot News RO
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