LONDON– Britain’s embattled Prime Minister Liz Truss scheduled a hastily arranged press conference for Friday after her finance chief rushed back to London to hold urgent talks over an economic package that sparked market turmoil.
Truss’ office did not reveal the subject of the press conference, but she and Treasury chief Kwasi Kwarteng are under intense pressure to roll back unfunded tax cuts to calm financial markets and quell a snowball revolt by members of their own Conservative Party.
Kwarteng walked out of the International Monetary Fund’s annual meeting a day early amid the crisis sparked by investor fears that £43 billion ($48 billion) in tax cuts will push Britain’s public borrowing to unsustainable levels and stoke inflation will.
Kwarteng initially dismissed suggestions on Thursday that the government was reversing course, but in a later interview with The Daily Telegraph he just said “let’s see” when asked if he could renege on his corporate tax promise.
Senior Conservative Party members are publicly advising the government to act. The pound rose as much as 1.7% against the dollar on Thursday and bond markets stabilized on expectations that Truss and Kwarteng, whose official title is Chancellor of the Exchequer, will revise their economic growth plan.
“So my advice to the Chancellor would be do it, do it now,” Mel Stride, chairman of the House of Commons Finance Committee, told the `. “Make sure it’s something meaningful, that doesn’t just nibble on the edges, but something that’s firm, bold and compelling, and do it as soon as possible.”
Truss, a free-market libertarian, came to power last month and vowed to cut taxes to boost growth. But their ability to honor that commitment is now in doubt.
Analysts suggest the most likely change to her program would be to abandon a promise to halt her predecessor’s plan to raise corporate taxes from 19% to 25%. That would reduce the bill for their program by around £18billion a year.
James Athey, investment director at abrdn, said it now seemed certain that the government “is about to reverse its decision not to reverse its wasteful tax cut policy”. The rumors are calming the markets, he said.
“The risk now is that investors have forgotten that there is a lot more to the problem than ill-advised and ill-timed fiscal easing,” he said. “Inflation is at multi-decade highs, government debt is huge, as is the current account deficit. The housing market is set to take a hammer blow from the rise in mortgage rates and the war in Ukraine rages on. We may have weathered the worst of the volatility, but I fear the UK is far from over the hump.”
Kwarteng’s return to London comes as Conservative lawmakers debate whether to seek to oust their second leader this year. Truss was elected last month to replace Boris Johnson, who was ousted from office in July. Some reports suggest senior Conservatives are planning to replace Truss with a joint ticket from Rishi Sunak and Penny Mordaunt, their two closest rivals in the summer contest for the party’s leadership, although it is unclear how this might be achieved.
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