Chancellor pleas for 'cool heads' as he meets global finance chiefs for crisis talks - as millions face rocketing mortgage bills
28 September 2022, 11:02
Global finance chiefs were meeting with the Chancellor today after his tax-cutting budget spooked markets, sending the pound plummeting and leaving millions of Brits facing rocketing mortgage bills.
Kwasi Kwarteng was meeting with investment bankers today as the pound dipped again after the IMF urged him to rethink the plans and said they would ‘increase inequality’ in the country.
JP Morgan's chief executive in Europe, the Middle East and Africa arrived at the Treasury today for a meeting with Mr Kwarteng, as did Bank of America’s President of International Bernard Mensah.
Neither responded to questions as they entered the building.
There was growing concern among Tories last night as pressure mounted over the plans which have been described as ‘raging incompetence’ by economists.
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Mr Kwarteng told dozens of MPs that the government can see this through and that ‘cool heads’ are needed.
Sterling dropped to $1.06 this morning after recovering to $1.08 yesterday.
Economist Professor Danny Blanchflower told Sky News: “I’ve never seen anything like this. I’ve been a f***ing economist for 50 years, I went through the Great Recession. I have never seen such raging incompetence, ever - sorry.
“What’s worse than a u-turn. I call it a screeching handbrake u-turn. The reality is it’s uncosted estimates and they don’t look credible.
“If you’re the chancellor of the exchequer and what you’ve done is you’ve stood up, crashed the markets, crashed the bond market, crashed the foreign exchange market, the stock market’s dropped, the housing market’s in trouble, and you’ve created a giant recession because the Bank of England has to raise rates, your credibility is completely trashed.
"What’s the PM going to say? At the moment she appears to be hiding.”
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Starmer reacts to IMF warning on UK mini-budget
Mr Kwarteng is stepping up efforts to reassure the City about his economic plans after the International Monetary Fund (IMF) criticised the Government's strategy - and as the pound suffered further falls.
The Chancellor remains under pressure to reassure the markets after the Bank of England suggested sharp interest rate rises could be on the way.
Representatives from Bank of America, JP Morgan, Standard Chartered, Citi, UBS, Morgan Stanley and Bloomberg will all attend the meeting today, following days of turmoil which saw the pound buffeted and Government borrowing costs increase after his mini-budget spooked the markets with its package of tax cuts and increased borrowing.
In an extraordinary statement, the IMF said it was "closely monitoring" developments in the UK and was in touch with the authorities, urging the Chancellor to "re-evaluate the tax measures".
Experts warned homeowners face mortgage chaos with fears interest rates could reach 5.5pc by November.
Hundreds of mortgage deals have been pulled from the market in a scramble following the Chancellor’s mini-budget last week.
Experts have said they fear interest rates could rise to six per cent next year and that the Bank of England could announce another 1.5pc rise by November.
Halifax, Virgin Money, HSBC, Santander, and Skipton are all among banks that have pulled deals in the past two days.
The IMF warned the current plans, including the abolition of the 45p rate of income tax for people on more than £150,000, are likely to increase inequality.
The move came as the Bank of England signalled it was ready to significantly ramp up interest rates to shore up the pound and guard against increased inflation.
The pound suffered further falls on Wednesday morning, falling back to 1.06 US dollars after reaching 1.08 US dollars on Tuesday.
The FTSE 100 Index also fell sharply after opening on Wednesday, falling more than 100 points to 6872.7 - a drop of 1.6% - following market losses in the US overnight
The Chancellor insisted he was "confident" his tax-cutting strategy will deliver the promised economic growth.
Sterling slumped to a record low against the dollar on Monday before recovering and the Chancellor has sought to convince City investors he has a "credible plan" to start reducing the UK's debt mountain.
But the IMF said in a statement: "We understand that the sizeable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.
"However, given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross-purposes to monetary policy.
"Furthermore, the nature of the UK measures will likely increase inequality."
It urged Mr Kwarteng to change course when he comes back to Parliament in November with a package intended to show how he will get the public finances back on track.
"The November 23 budget will present an early opportunity for the UK Government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners," the IMF said.
In response to the criticism a Treasury spokeswoman said: "We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise caused by (Vladimir) Putin's illegal actions in Ukraine."
The Government was "focused on growing the economy to raise living standards for everyone" and the Chancellor's statement on November 23 "will set out further details on the Government's fiscal rules, including ensuring that debt falls as a share of GDP (gross domestic product) in the medium term".
Labour leader Sir Keir Starmer, fresh from a party conference where his party positioned itself as the government-in-waiting, said that the IMF rebuke should not be ignored and urged Mr Kwarteng to change course.
The Liberal Democrats have also called for Parliament, which is currently in conference recess, to be recalled to fix what the party called a "mess".
The Bank of England's chief economist Huw Pill warned Threadneedle Street "cannot be indifferent" to the developments of the past days, seen as a signal the cost of borrowing will have to go up to protect the pound and keep a lid on inflation.
"It is hard not to draw the conclusion that all this will require significant monetary policy response," Mr Pill said.
Former US treasury secretary Larry Summers told Newsnight that Britain was facing a "very ominous" combination of factors.
"I can't in all honesty remember a time when a set of policy announcements from a G7 country elicited so negative a response, both from markets and from economic experts," he said.
Interest rate rises could lead to increased mortgage costs and make business borrowing more expensive.
With some analysts predicting the Bank of England's base rate, currently standing at 2.25%, will have to rise to as high as 6% next year, some lenders began withdrawing mortgage products amid the uncertainty.
The crisis was triggered by Mr Kwarteng on Friday when he unveiled a massive £45 billion of tax cuts funded by Government borrowing.
At meetings on Wednesday with investment banks, the Chancellor is expected to emphasise the importance of the reforms ministers will be setting out in the coming weeks to boost growth, including his "Big Bang 2.0" measures to further liberalise financial market regulation.
Despite some disquiet among Tory MP about the market chaos, backbench allies of Ms Truss have insisted that she should stand firm and commit to her plan.
"My message today is that the Government are right to see the main threat for the year ahead is recession, not inflation," Sir John Redwood told Sky News.
