The pound has risen to its highest level in two weeks after the Chancellor tried to reassure investors by promising to provide details on how he would cut debt.
It surged to $1.14 and rallied after Kwasi Kwarteng’s plans to fund tax cuts through additional borrowing, worrying worried investors.
He will explain how the cuts will be paid for this month, having previously said he would wait until November 23.
Fears that his plans are unaffordable caused turmoil in the markets last week.
Conservative MP Mel Stride, chair of the Treasury Select Committee, told the BBC’s Today program that the deleveraging plan was “key to calming markets”.
On the back of the mini-budget, the pound fell to a record low, government borrowing costs soared and the Bank of England had to step in and act after dramatic market movements put some pension funds at risk of collapsing.
The market turmoil was fueled by the lack of an independent forecast of the impact of the plans, offered by the independent forecaster Office for Budget Responsibility (OBR) but rejected by the government.
Investors also bet interest rates would rise faster than previously thought, prompting banks to pull back mortgage products as uncertainty made long-term loans difficult to price.
Mr Stride said if the OBR forecast is confirmed, interest rate expectations could fall, “which will matter to millions of people across the country when it comes to their mortgages”.
Following a backlash from Tory MPs, Mr Kwarteng made two dramatic U-turns on Monday, first declaring he would not scrap the top tax rate for the highest paid and later agreeing to bring forward his debt-reduction plan.
This is now due to be released later this month, before November 3rd, when the Bank of England next meets to make its latest interest rate decision.
Interest rates have risen seven times since December as the bank tries to stem inflation – the rate at which prices are rising. At 9.9%, this is currently at an almost 40-year high.
By raising interest rates, the bank wants to cool demand in the economy – and thus prices – but it also makes it more expensive to borrow for mortgages or other loans.
- Kwarteng is to draw up a debt plan earlier than planned
- Truss refuses to rule out real-world performance cuts
- Tax turnaround lifts pound as borrowing costs fall
Mr Stride said: “If [the OBR forecast] goes down well… that’s to be expected [Bank of England] to achieve lower rate hikes, which of course in turn is very helpful for those with mortgages, corporate credit and indeed the cost of the government servicing its own debt.”
However, he said there were doubts whether the OBR would give its blessing.
Mr Stride said much would depend on the government to prove its policies can boost economic growth to the promised rate of 2.5% a year, which will be “difficult to deliver”.
Otherwise, Mr Stride said the government would have to “backtrack” on other promised tax cuts or “embark on” public spending cuts at a time of rising inflation, which could face stiff opposition.
According to the Times, Cabinet ministers are already openly opposed to a plan to increase benefits in line with wages rather than inflation, a change that would save around £5billion.
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