"UK's Truss sacrifices finance minister, scraps tax plan in fight to survive"
British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday, replacing him with former foreign minister Jeremy Hunt, and scrapped part of her big unfunded tax cut plans that had sparked market turmoil.
The response from markets was so ferocious that the Bank of England intervened to prevent pension funds from being caught up in the chaos, as borrowing and mortgage costs surged where millions are facing a cost of living crisis.
But markets are far from convinced. A major reshuffle and scrapping of a key tax-cutting wasn't enough to placate markets with the pound and government bonds continuing to sell off.
Kwarteng’s departure comes after a month in the job and 3 weeks after he announced a tax-cutting “mini budget” that sent the pound plunging to record lows against the US dollar. Kwarteng is the United Kingdom’s shortest-serving chancellor since 1970.
Jeremy Hunt, who has previously served as foreign and health secretary, will be the UK's fourth chancellor so far this year and will face big challenges with prices soaring and hikes in interest rates. Hunt is a man without an enormous amount of experience in treasury matters, but a lot of experience in government.
This is potentially an effort by the prime minister to reach across the aisle and try to secure some unity in her very troubled party. Truss said her new chancellor shared her vision for the country and would deliver a statement on her economic plan at the end of this month.
Some economists warned that the latest developments might not be enough to restore the UK's credibility.
Truss told a news conference Britain would retain a plan to increase corporation tax and said her government needed to act now to reassure markets about its fiscal discipline.
The pound fell against the dollar, trading down 1% at $1.1280, near the day's lows on Friday before clawing back some losses.
U.K. government bonds (known as gilts) rallied sharply ahead of Truss' news conference. The 30-year yield briefly touched 4.261% during morning trade.
But the bonds gave back the gains after the conference, returning the said yield to around 4.819% by around 5 p.m. U.K. time.
It seems that Truss's speech did little to reassure markets, or to convince analysts that Britain's financial storm has passed. Rather than settling the waters, Truss's U-turn on tax decisions will leave investors cautious of future political upheaval.
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