T he Bank of England has been urged to raise interest rates as soon as next week to help the pound from further weakening.
Sterling plunged by the most since March 2020, reaching the lowest in 37 years against the US dollar, following Kwasi Kwarteng's mini-Budget. It fell by as much as 3.5pc to $1.0863 after the Government outlined new debt borrowing to fund increased spending.
Meanwhile, UK bond yields were on the rise, with the 10-year gilt yields seeing their biggest one-day surge on record in Bloomberg data.
Deutsche Bank analysts said there are "very strong signals" that the market is no longer willing to fund the UK’s external deficit position.
Threadneedle Street needs to show that it will do “whatever it takes” to bring inflation down quickly and real yield in to positive territory.
Deutsche Bank's analyst George Saravelos said: "We’ve been expressing our concerns about UK external sustainability for a while. The very large, unfunded tax cuts and other fiscal giveaways announced by the UK chancellor a few minutes ago only strengthen our worries.
"From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding."
T hat's all from us, thank you for sticking with us for the whole day. Before you set off for the weekend, have a look at the latest stories on the mini-Budget:
K wasi Kwarteng has unleashed the biggest tax cuts for half a century in a gamble on economic growth that caused turmoil on financial markets. Szu Ping Chan, Daniel Martin and Tom Rees write:
On his 18th day in the job, the Chancellor abolished the top rate of income tax and brought forward a reduction in the basic rate that will benefit 31 million workers.
The pound plunged to a fresh 37-year low of less than $1.09, while UK borrowing costs suffered their biggest one-day jump on record after Mr Kwarteng announced a £45bn package of unfunded tax cuts that economists described as a “high-risk leap of faith”.
Read the full story here
B arclays has told its investment bankers to work from the office at least four days a week, saying worsening market conditions mean a greater need for in-person collaboration.
Starting next month, the company expects dealmakers around the world to be back in the office Monday through Thursday, Bloomberg reported.
“This approach will provide for all of us a more optimal environment in which we can collaborate on compelling client pitches and execution of live deals,” the lender’s Investment Banking Management Team wrote in the memo.
Such a return is especially important in the context of “tougher market environments like the current part of the cycle where proactive engagement and thought-provoking content is most important for our clients.” It will also help the development of younger bankers, the memo said.
E veryone knew Kwasi Kwarteng's first tax-cutting measures would be radical. Fiscal discipline would be replaced by a gamble on growth. Will it work?
Read more in Szu Ping Chan's and Tom Rees' analysis
G old headed for a second weekly decline after a slew of central banks followed the Federal Reserve in raising interest rates to cool inflation.
Bullion slipped to the lowest in more than two years on Friday as the dollar climbed to a record. The precious metal joined the selloff in risky assets as investors opted for cash after the UK’s economic plan reignited concerns that central banks’ aggressive interest-rate hikes may lead to a recession.
Weakness in bullion is “very likely to persist” due to “monetary tightening that makes gold costlier to hold,” said Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services. “However, recession fears and any escalation in the Russia and Ukraine conflict could support prices.”
E urostar is facing an uncertain future as the cost of living crisis sparks a downturn in bookings, raising the spectre of the company being forced back into emergency talks with investors. Oliver Gill has more:
The Channel Tunnel train operator said that reduced economic growth, a recession or “high levels of inflation reducing the disposable incomes of potential customers” could leave Eurostar experiencing financial difficulties, according to company filings.
Eurostar added that a “severe dampening of demand” could lead to the company breaching promises to its lenders on retaining a minimum level of cash reserves.
Read the full story here
O ver in Wall Street, indices weren't faring much better as investors feared the US Federal Reserve's hawkish policy actions to quell inflation could trigger a recession and dent corporate earnings.
The Dow was briefly down more than 20pc from its Jan. 4 record all-time closing peak of 36,799.64 points. A close of 20pc or more below that level would confirm the blue-chip index was in a bear market. The S&P 500 and the Nasdaq are already in a bear market.
After enjoying hefty gains for last two years, Wall Street has been rocked in 2022 amid worries about a host of issues including the Ukraine conflict, China COVID-19 flare ups, energy crisis in Europe and tightening financial conditions across the globe.
T he pound and London stock market plunged in what one analyst called "the worst day I have ever seen" after the Chancellor's mini-budget. The FTSE 100 closed 2pc lower at 7,018.
Sterling repeatedly fell to new 37-year lows against the dollar during the day, slowly edging towards its all-time trough. At its lowest point on Friday afternoon £1 could buy just $1.0896 dollars, the worst exchange rate for Britons since 1985.
It was a drop of over 3pc and means the pound has lost more than 7pc of its value against the dollar in just a month.
"The is the worst day I've ever seen in the markets from a British perspective," said Neil Wilson, an analyst at Markets.com.
Paul Krugman, a US economist who won the Nobel Prize in 2008, said: "Britain is now trading like a developing country, where perceived fiscal irresponsibility is undermining confidence in the value of its currency."
T he Bank of England needs to raise interest rates again and as soon as next week, according to Deutsche Bank, to help the UK regain credibility on the international arena.
As the pound and gilts are experiencing historical drops today, analysts said that the market is "giving very strong signals" that it is no longer willing to fund the UK’s external deficit position.
Threadneedle Street needs to show that it will do “whatever it takes” to bring inflation down quickly and real yield in to positive territory.
Deutsche Bank's analyst George Saravelos said: "We’ve been expressing our concerns about UK external sustainability for a while. The very large, unfunded tax cuts and other fiscal giveaways announced by the UK chancellor a few minutes ago only strengthen our worries.
"From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding."
E very Treasury official will be expected to work to simplify taxes and slash complexity from the system, the Chancellor said as he closed down the dedicated Office of Tax Simplification (OTS). Tim Wallace reports:
The advisory group was set up in 2010 by George Osborne to “sort out [the] mess” left by “A decade of meddling and intervening” in the tax system under the previous Labour administration.
But Kwasi Kwarteng said the thinking which powered the OTS needs to be embedded “into the heart of Government”.
“For the tax system to favour growth, it needs to be much simpler,” he said, praising the OTS’s work over the past 12 years.
“But instead of a single arms-length body which is separate from the Treasury and HMRC, we need to embed tax simplification into the heart of Government."
T he UK government will relax planning rules for onshore to allow projects to be deployed more easily, marking a significant policy shift.
Britain vowed to speed up the planning process for energy infrastructure including offshore wind farms and new oil and gas fields in the mini-budget. Onshore wind was effectively banned in 2016, but developers were allowed to enter the government’s latest subsidy competition in a softening of policy.
The UK is focusing on accelerating sources of homegrown energy as it seeks to reduce its dependence on imports that are priced against volatile international markets.
?BREAKING! The Government has lifted the effective ban on onshore wind in England. ✅10x cheaper than gas ✅2/3 people want local wind ✅Energy on grid within months Clean, cheap energy is the only way out of this crisis. pic.twitter.com/BqxBJtEE8x
T hat's all from me – thanks for following on a hectic day! It's not over yet, though. Giulia Bottaro will take things from here, so stay tuned.
S terling just keeps dropping, and it's now posted its biggest one-day fall since March 2020.
The pound tumbled more than 2pc against the dollar to as low as $1.0898.
That's the biggest one-day drop since it tumbled 3.7pc in the early days of the pandemic. It's also inching ever closer to its all-time low of $1.0520.
D esigner stores have welcomed the planned return of tax-free shopping for overseas tourists, saying it will boost troubled high streets.
Visitors will be able to obtain a refund on VAT on goods bought in shops, at airports and shipped from the UK in their personal luggage under a new scheme being considered by the Government. The move is a particular boost to London's luxury sector, which relies on tourists from the Middle and Far East.
A previous tax-free shopping scheme was abolished at the end of 2020, angering retailers hit hard by the pandemic.
The Treasury will consult on replacing the previous paper-based system with a digital one.
Anne Pitcher, managing director of Selfridges, said the scheme “will support tourism across the country”.
Thierry Andretta, chief executive of the bag maker Mulberry, said: “This decision will reinstate London and the other major UK cities to their rightful place among the top luxury shopping destinations in the world, as well as providing invaluable support to the UK’s hospitality sector."
Brian Duffy, who runs Watches of Switzerland, said it “will significantly encourage tourism spend in the UK”.
S easoned markets analyst Neil Wilson offers this damning assessment of today's turmoil...
the is the worst day I've ever seen in the markets from a British perspective
O il prices tumbled to their lowest since January amid fears of a global recession and a stronger dollar.
Benchmark Brent crude sank 5pc to under $86 a barrel, while West Texas Intermediate was trading below $80 for the first time since the beginning of the year.
T he pound has continued its brutal slide in the aftermath of Kwasi Kwarteng's mini-Budget.
It's now dropped 2.3pc to below $1.10, putting it ever closer to its all-time low and dreaded parity with the dollar.
D rinkers will save 7p on the price of a pint and 38p on a bottle of wine under an alcohol duty freeze as pubs brace for a tough winter in the cost of living crisis.
Hannah Boland has the details:
The Chancellor said he had "listened to industry concerns" over changes to levies which had been due to come in next February and that "at this difficult time, we are not going to let alcohol duty rates rise in line with Retail Prices Index."
The Treasury said the freeze, which is worth £600m, would "support businesses and help consumers with the cost of living", and would also save 4p on a pint of cider and £1.35 on a bottle of spirits.
Despite this, drinkers could still see price increases over the coming months, as businesses battle steeper ingredients and energy costs.
One brewing insider said the rises they were experiencing on raw material costs, energy costs and labour and transport were "significant".
They said businesses may struggle to swallow all those costs themselves, even with the duty freeze.
Read Hannah's full story here
R obert Colvile, director of the Centre for Policy Studies, issues a positive response to Kwasi Kwarteng's tax-cutting Budget.
This Government has been bold and ambitious in pursuing a pro-growth agenda – not just for now, but over the long term.
The challenge now is for the Government to ensure not just that we get through the current crisis, but that supply side reform translates into real improvement in people’s prosperity and living standards, whatever you earn and wherever you live.
T he IFS's fiscal forecasts suggest borrowing will remain over £100bn a year for the rest of the decade.
Director Paul Johnson says this breaks the Government's own rules and brands it "unsustainable".
Here's what the OBR might have said. Borrowing well over £100bn a year into the medium run. This breaks all the government's own fiscal rules and is unsustainable. Not so odd, perhaps, that no OBR forecasts with today's statement. https://t.co/76kNihMq5J
T here's market turmoil across the Atlantic, too.
Wall Street's main indices have opened lower, heading towards their lowest since June as investors fret about an economic downturn and more interest rate rises.
The benchmark S&P 500 fell 0.8pc, while the Dow Jones was down 0.4pc. The tech-heavy Nasdaq slumped 1pc.
C hris Philp, chief secretary to the Treasury, may want to rethink this tweet, which has aged about as well as milk...
Great to see sterling strengthening on the back of the new UK Growth Plan https://t.co/Ec8tgXkgKd
T he pound could sink below parity with the dollar due to the "naive" policies being pursued by Liz Truss's Government, a former US Treasury Secretary has said.
It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market.
Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursuing the worst macroeconomic policies of any major country in a long time...
It would not surprise me if the pound eventually gets below a dollar, if the current path is maintained.
This is simply not a moment for the kind of naïve, wishful thinking, supply-side economics that is being pursued in Britain.
M y colleague Matt Oliver has more details on the bonfire of the EU red tape:
Remaining EU laws are to be torn up by the end of next year as part of the Chancellor's bid to reduce unnecessary costs for British businesses and unleash growth.
Kwasi Kwarteng said the bonfire of red tape would lead to “a simpler system” that was easier for firms to navigate, as he also unveiled a bonanza of tax cuts to boost the flagging economy.
He said government departments have been ordered to review all retained EU regulations by December 2023, by which point they will be “automatically” axed unless they are amended or replaced.
According to official data, the UK has retained 2,417 pieces of EU law since leaving the bloc.
Only 182 of these laws have been amended, 196 have been appealed and 33 have been replaced.
The largest chunk – around 570 laws – govern environmental issues such as water quality, air quality, habitat protections and agricultural rules such as the use of pesticides, which the Department for Environment, Food and Rural Affairs is responsible for.
Meanwhile, another 424 are looked after by the Department for Transport, 374 by the Treasury, 318 by the Department for Business and 228 by HM Revenue & Customs.
Read Matt's full story here
A longside declines in the pound and FTSE, there's also been a record plunge in bonds.
The yield on five-year bonds jumped as much as 57 basis points, on track for its biggest increase ever.
It comes after Kwasi Kwarteng outlined major tax cuts and spending plans. The Debt Management Office has lifted its government bond sales for this fiscal year by £62.4bn to fund the measures.
Mike Riddell at Allianz Global Investors said:
Gilt yields up and the pound down is a very worrying combination, as it is indicative of markets pricing in risk premia to the UK.
It's a clear sign that the UK's inflation fighting credibility is at stake.
R uth Gregory, senior UK economist at Capital Economics, says Kwasi Kwarteng is taking a gamble with his tax cuts.
The Chancellor claimed that this was a plan for growth.
But unless the Chancellor’s gamble pays off and the government’s fiscal policy boosts GDP growth by 0.5-1.0ppts per annum, the risk is that once the near-term boost to GDP fades, the legacy of the government’s fiscal plans will be higher interest rates and a higher public debt burden.
The market reaction, which included a jump in gilt yields means higher borrowing costs are already here.
T he Chancellor's massive package of tax cuts will boost growth in the short term but drive up interest rates and spark an additional £411bn of borrowing over five years.
That's according to the Resolution Foundation, which has analysed the numbers in the absence of an official OBR forecast.
The think tank said the deterioration of the economic outlook since March, as well as additional packages of energy support, are estimated to have increased borrowing by £265bn over the next five years.
Tax cuts of £146bn raise that to £411bn.
While extra borrowing is greatest this year (£130bn) given the scale of energy bill support, the permanence of the tax cuts combines with higher interest rates and weaker growth to mean that the £30bn of headroom the previous Chancellor maintained against his fiscal rule of having debt falling as a share of GDP has been blown through twice over by 2026-27.
Today the Chancellor announced the largest tax cuts in 50 years – the largest in a single fiscal event since Anthony Barber’s ill-fated 1972 Budget – driving a £411 billion borrowing surge that will break all fiscal rules - THREAD ? pic.twitter.com/WJUMq89Qtt
H ere's another helpful calculator – this time for the stamp duty cut – courtesy of my colleague Melissa Lawford.
Read her full story here
F ind out with our handy tax cut calculator.
F ormer Bank of England rate-setter Danny Blanchflower has a reputation for being vocal about fiscal policy, and today's no exception.
In a series of tweets, he takes aim at Chancellor Kwasi Kwarteng's tax cuts, branding them "reckless, partisan and uncaring".
Most scathing, though, is his assessment that it's "like having a drunk driver in charge of the economy."
The economics of the madhouse Uncosted giveaways to help the rich and already crashing the markets it is like having a drunk driver in charge of the economy
F ears that cutting taxes could fuel the UK's inflation crisis are "utter rubbish", a top adviser to Liz Truss has said.
Bank of England officials this week warned that the Government's plan to boost the economy raised "difficult" issues as the MPC tries to keep a lid on inflation.
Today's slump in the pound and FTSE partly reflect those concerns.
Yet Gerard Lyons dismissed the worries, telling Bloomberg:
That's complete and utter rubbish really quite frankly, and that should be knocked on the head. The Bank of England's messaging is very bizarre. They have a self-made credibility gap.
T im Sarson, head of tax policy at KPMG, says Kwasi Kwarteng has "had a Don’t Stop Believin’ moment".
New Chancellor Kwasi Kwarteng has delivered a fiscal statement flavoured with a return to the economics of the 1980s aimed at driving economic growth and productivity while tackling a wide range of fiscal, social and economic challenges head on.
Businesses saw a fiscal statement that felt very different and a clear shift in Government policy. Gone is Sunak’s higher tax approach focused on balancing the books and instead we have a range of measures to try and halt the UK’s languishing growth figures and super-charge its economy.
Overall, this was a fiscal statement that felt very different and showcased a clear change of direction from the new Government.
While parts were not as radical as predicted, such as no major stamp duty reform and only talk rather than actions on business rates, this was a statement of intent by the new Chancellor.
It is now left for businesses and the economy in general to see these changes put in place and assess if they provide the boost that is both intended and needed to deliver growth.
K wasi Kwarteng has heralded the “beginning of a new era” for Britain’s economy that will be dominated by tax cuts – funded through government borrowing – and deregulation in an unapologetic pursuit of growth.
In the process, the Chancellor has effectively rode roughshod over not only the economic legacy of Boris Johnson and Rishi Sunak, but the economic orthodoxy adopted by all Conservative governments since 2010.
My colleague Simon Foy has compiled the 10 key quotes that sum up this approach.
I n a clear sign of how the mini-Budget is fuelling inflation fears, markets have ramped up their bets on future interest rate rises.
Traders are now fully pricing in a massive 100 basis-point rise in rates at the Bank of England's meeting in November.
The MPC this week opted to raise rates by 50 basis points, shunning a more aggressive 75 bp move. But markets now think it will leapfrog that increase and go straight for the full percentage point.
That would be the biggest increase in interest rates since 1989.
Markets now expect interest rates to jump above 5pc by March.
G eorge Saravelos, an analyst at Deutsche Bank, issues a stark warning over the outlook for the pound.
The very large, unfunded tax cuts and other fiscal giveaways announced by the UK Chancellor a few minutes ago only strengthen our worries.
From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding.
The large fiscal spend just announced may boost growth a little in the short-term. But the bigger question is this: who will pay for it?
Given the UK’s twin deficits the answer is foreign savers. Put simply, it is American and European pensioners that will need to purchase the extra issuance of gilts.
But in an environment of such high global uncertainty, we worry that the price foreigners will ask in return for financing the new stimulus will be very high.
In other words, the equilibrium value of gilts expressed in dollar and euro terms will have to come down sharply.
It is extremely unusual for a developed market currency to weaken at the same time as yields are rising sharply. But, this is exactly what has happened since the new Chancellor’s announcement.
We worry that investor confidence in the UK's external sustainability is being eroded fast.
T hings are going from bad to worse for the pound, which has extended its tumble against the dollar to more than 2pc.
Sterling fell as low as $1.1027 to a fresh 37-year low.
Meanwhile, the FTSE 100 is now down 2pc, as traders worried about further interest rate rises and the outlook for the economy.
The domestically-focused FTSE 250 has slumped to its lowest since November 2020.
M ark Littlewood, director general at free market think tank the Institute of Economic Affairs, is happy about today's announcements.
This isn’t a trickle-down Budget, it’s a boost-up Budget. The Government has announced a radical set of policies to increase Britain’s prosperity – from cancelling the corporation tax rise, to cutting stamp duty and extending investment allowances.
It’s refreshing to hear a Chancellor talk passionately about the importance of economic growth and supply-side reforms, rather than rattling off a string of state spending pledges and higher taxes.
Only by bearing down on the amount of tax the state collects across the income spectrum, and reducing the regulatory burden, can we create better conditions for growth.
U nion bosses have hit back at the Chancellor over plans to crack down on strikes.
RMT general secretary Mick Lynch said:
We already have the most severe anti-democratic trade union laws in Western Europe and this latest threat will rightly enrage our members.
The government should be working towards a negotiated settlement in the national rail dispute, not seeking to make it even harder to take effective strike action.
RMT and other unions will not sit idly by or meekly accept any further obstacles on their members exercising the basic human right to withdraw their labour.
A lison Hill, tax partner at PwC, says the overhaul of income taxes will make Britain stand out internationally.
The abolition of the top rate of income tax was one of the biggest ‘Budget’ shocks in recent memory. If this was a ‘mini-Budget’ it begs the question what is the Chancellor saving for the full Budget?
The abolition of the 45pc rate is by no means the most costly of the Chancellor’s announcements – at a still significant roughly £2bn a year – but it’s a key component in his aspiration to make the UK a ‘nation of entrepreneurs’.
This unexpected move was also clearly designed to show the seriousness of the Chancellor’s intent to improve the growth potential of the UK economy.
The reversal of the 1.25pc increase in the dividend tax rate from 2023, designed to boost the supply side of the economy, will benefit any taxpayer receiving dividends and represents a double boost for any additional rate taxpayers who fall into that category.
The changes announced today – along with yesterday’s announced reversal of the National Insurance Contributions increase – mean that Britain’s headline personal tax rates will stand out internationally.
The theory is that more skilled people and businesses will be attracted to work and invest in the UK, and by allowing the economically active to keep more of their income this will over time increase the overall tax take.
The Labour MP offers his wry assessment of the Government's fiscal policy...
I have a joke about trickle down economics. 99% of you won’t ever get it.
W hile the overall mood on the markets is gloomy, there are a few winners from today's announcements.
Housebuilding stocks have been given a boost after the Chancellor confirmed a cut to stamp duty. Persimmon, Berkeley, Taylor Wimpey and Vistry were among the risers.
Retailers also gained ground thanks to income tax cuts that will return a bit more cash to consumers. Planned increases in the duty rates for beer, cider, wine and spirits will be cancelled. M&S and Sainsbury's gained ground.
Meanwhile, banks including Lloyds , NatWest and Barclays trimmed their declines.
K itty Ussher, chief economist at the Institute of Directors, is upbeat about today's announcements, but adds a note of caution over the lack of fiscal forecasts.
This is a good news day for British business. In a time of low confidence and economic uncertainty, the new Chancellor’s emphasis on going for growth will be very welcome to firms of all sizes across the UK.
Taken together with the energy bills relief scheme, the package as whole will make it easier for businesses navigating a challenging economic environment in the coming months.
However, we are concerned that the Chancellor had not asked the OBR to undertake its usual independent assessment of the impact of its proposals on government debt and the wider macroeconomy.
Without this, neither businesses nor parliament have the reassurance that the scale of this intervention is affordable and so does not jeopardise overall economic stability.
We were also disappointed that the previous Chancellor’s workstream to use the tax system to incentivise workplace training to address skills shortages appears to have been abandoned, and that there was no mention of making capital investment super-deduction permanent or incentivising smaller businesses to play their part in decarbonising the economy.
K wasi Kwarteng is attempting to strike a sanguine tone over the grim market reaction to today's measures.
Answering questions in the Commons, he says: "The markets will do what they will."
I t's a similar message from hospitality businesses, who feel they've been overlooked in the mini-Budget.
Kate Nicholls, chief executive of UKHospitality, spoke to my colleague Hannah Boland:
I think you have to judge it as a plan for growth rather than a Budget. And there's certainly lots to welcome in there about the direction of travel of the government in terms of targets of tax cuts.
It's a very pro business stance, a pro business approach of how supporting business will help the country as a whole.
However, many businesses in our sector are still looking at survival, and there was little there that provides direct meaningful support in the short term.
One of the things I would say is that the central message seemed to be about comprehensive reform to deliver a globally competitive business environment and tax environment, and the two big areas that remain unchanged and don't deliver that are VAT and business rates.
So we would like to see that agenda taken forward over the autumn as those additional measures are looked at, to be able to deliver the support our businesses need to pay their full potential, and to make sure that we've got a globally competitive VAT and business rates regime.
R etailers have welcomed moves to cap energy bills, slash taxes and reintroduce tax-free shopping for tourists, but they're not happy about the planned 10pc jump in business rates next year.
Helen Dickinson, chief executive of the British Retail Consortium, says:
The Chancellor’s announcements should help to shore up consumer demand going into what will be a challenging winter for households and businesses alike.
The Energy Bill Relief Scheme, set out earlier this week, and announcements on National Insurance and Corporation Tax will help retailers shield their customers from some of the effects of inflation.
Furthermore, we welcome the reintroduction of tax-free shopping for tourists, which will boost sales and bring the UK back in line with other European nations.
Retailers are facing immense cost pressures, not just from energy bills, but also a weak pound, rising commodity prices, high transport costs, a tight labour market and the cumulative burden of government-imposed costs.
Yet what was missing from today’s announcement, was any mention of business rates, which are set to jump by 10pc next April, inflicting another £800m in unaffordable tax rises on already squeezed retailers.
It is inevitable that such additional taxes will ultimately be passed through to families in the form of higher prices.
There is still time for the Government to act. Freezing the business rates multiplier will stimulate investment and will allow retailers to focus on what’s important - keeping prices down for households.
T he Resolution Foundation has branded the Chancellor's policies a "big gamble".
Their chart highlights the depth of the impact of the tax cuts. At £45bn, the cost is second only to Lord Barber's infamous 1972 Budget.
The Chancellor has announced £45 billion of tax cuts – the biggest at any fiscal event since Antony Barber in 1972. The Chancellor is taking a big gamble today - that a 'Kwasi-boom' will turn up, and that it is more sustainable than the ill-fated 'Barber Boom'. pic.twitter.com/AnJFrTCSej
H ere's a more comprehensive summary of everything that's been announced today, courtesy of my colleague Tom Rees.
Key points: Kwasi Kwarteng reveals plan for tax cuts in mini-Budget
C hancellor Kwasi Kwarteng unveiled his 'fiscal event' – a Budget in all but name – this morning.
But how will it affect the money in your pocket? Read this concise guide by my colleague Richard Evans.
U K bonds tumbled after the Government ramped up its borrowing by more than expected to fund the new fiscal plan.
The Debt Management Office increased its gilt sales plan for 2022-23 by £62.4bn to £193.9bn.
Gilts extended their slump after the announcement, with the yield on 10-year gilts surging as much as 21 basis points to 3.7pc. Five-year yields jumped as much 32 basis points to 3.88pc.
The extra supply from the Government might prove especially challenging for the gilt market now that the Bank of England is also offloading bonds from its portfolio after years of buying.
The central bank said yesterday it plans to sell around £10bn in gilts each quarter starting next month.
H ere's more from the IFS's Paul Johnson, who predicts UK borrowing will hit £120bn in three years' time.
He warns public debt will continue to rise.
.@PJTheEconomist: “With £45 billion of tax cuts and a slowing economy... adding this to our most recent forecast we can expect to be borrowing getting on for £120 billion in 3 years time.” “If we’re doing that, then the debt will rise year on year.”#MiniBudget pic.twitter.com/wEJ8F6UDej
M ore number-crunching is underway and the total cost of the Chancellor's fiscal package comes out at £161bn over five years.
T hat all happened rather quickly, so if you're looking for a rundown of what's been announced today, here's Kwasi Kwarteng's "Plan for Growth" at a glance:
T oday's not-so-mini-Budget is the biggest tax-cutting event since 1972, according to the head of the Institute for Fiscal Studies.
He issues a word of warning about Lord Barber's notorious "dash for growth" 50 years ago, however.
£45 billion of tax cuts. This is biggest tax cutting event since 1972. Barber's "dash for growth" then ended in disaster. That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.
T he Treasury has estimated that today's slate of tax cuts will cost £45bn by 2026-2027.
Tax cuts announced today are costed by HMT as £45bn by 2026-27 pic.twitter.com/C8oy4utZav
T he Chancellor has just announced the biggest raft of tax cuts since 1988 and practically reset UK fiscal policy – and it wasn't even a full Budget.
But there's some disquiet about the fact he's done so without the normal OBR forecasts.
Olly Bartum, senior economist at the Institute for Government, brands the move "extremely irresponsible".
"I don't see how taking such big risks with the public finances will turn out to be anything other than a huge mistake," he adds.
No I'm being too polite - the scale of these tax cuts with - no financing plan - no official forecast from the OBR is EXTREMELY IRRESPONSIBLE. I don't see how taking such big risks with the public finances will turn out to be anything other than a huge mistake https://t.co/Wr4jB4gwtT
T he FTSE 100 has dropped sharply after the Chancellor's mini-Budget, despite hopes tax cuts will boost economic growth.
The blue-chip index fell as much as 1.2pc to more than a two-month low.
W ell, there was a lot in that.
Among other things, the Chancellor has announced the scrapping of the 45pc additional tax rate and a cut to the basic rate of tax to 19pc.
Stamp duty will be cut, bankers' bonuses will be scrapped and the rises in corporate tax and National Insurance cancelled.
Reaction is starting to come in, so we'll bring you everything from markets, economists and industry here.
Well, nothing "mini" about that budget.
T hat's all folks, the Chancellor has finished speaking.
He says: "We promised to prioritise growth. We promised a new approach for a new era. We promised, Mr Speaker, to release the enormous potential of this country. Our Growth Plan has delivered all those promises and more. And I commend it to the House."
T he basic rate of income tax will also be cut to 19pc in April 2023 – that's one year early.
He says this means a tax cut for over 31m people.
"That means we will have one of the most competitive and pro-growth income tax systems in the world."
K wasi Kwarteng has just produced his first rabbit.
From 2023, the Government will abolish the 45pc additional tax rate.
Instead, there'll be a single higher rate of income tax of 40pc.
The Chancellor says this will simplify the tax system and make Britain more competitive.
I t's confirmed – the Government will slash stamp duty.
Currently, there's no stamp duty to pay on the first £125,000 of a property's value. This will be doubled to £250,000.
What's more, the threshold for first-time buyers will be increased from £300,000 to £425,000.
And, the value of the property on which first-time buyers can claim relief will be raised from £500,00 to £625,000.
He says: "The steps we’ve taken today mean 200,000 more people will be taken out of paying stamp duty altogether. This is a permanent cut to stamp duty, effective from today."
T his one we already knew – the recent increase in National Insurance will be reversed from November 6.
The Government will also scrap the planned Health and Social Care Levy.
He says this delivers a tax cut for 28m people worth on average £330 every year.
He adds that the additional funding for the NHS and social care services will be maintained at the same level.
T he Chancellor is now announcing a string of reforms to financial legislation.
The Office of Tax Simplification will be wound down, with tax officials told to focus on simplifying the tax code.
EU regulations will automatically be removed by 2023, requiring departments to review, replace or repeal retained EU law.
IR35 rules will be simplified, with 2017 and 2021 reforms repealed.
H ere's another one – the planned increase in corporation tax will be cancelled.
It won't rise to 25pc, but instead remain at 19pc. The Chancellor says this is the lowest rate in the G20 and will return about £19bn a year to the economy.
"That’s £19bn for businesses to reinvest, create jobs, raise wages, or pay the dividends that support our pensions."
A nother announcement that was trailed - new low-tax investment zones.
There'll be liberalised planning laws and tax cuts in these area.
He says: "That is an unprecedented set of tax incentives for business to invest, to build, and to create jobs right across the country."
A s expected, the Government is ending the cap on banker bonuses.
Mr Kwarteng says: "All the bonus cap did was to push up the basic salaries of bankers, or drive activity outside Europe. It never capped total remuneration, so let’s not sit here and pretend otherwise. So we’re going to get rid of it."
T he Chancellor says it's "simply unacceptable that strike action is disrupting so many lives".
The Government will mirror minimum service level laws in Europe that stop trade unions closing down transport networks during strikes.
There will also be new laws requiring unions to put pay offers to a member vote.
W ith more vacancies than unemployed people to fill them, people needed to be encouraged to join the labour forced, Kwarteng says.
Benefits will be reduced if people don't fulfil their job search commitments. There'll be extra support for unemployed over-50s.
Around 120,000 more people on Universal Credit will be asked to take active steps to seek more work, or face having their benefits reduced.
H ere's the first new policy...
The Government will tear up planning restrictions that the Chancellor says are holding back infrastructure projects and hampering growth.
The Government is also publishing a list of infrastructure projects that will be prioritised for acceleration, in sectors such as transport energy and telecoms.
He says: "Mr Speaker, we are getting out of the way to get Britain building."
H ere's the first new figure – the total cost for the Government's energy support will be about £60bn.
That's a forecast for the six months from October, though Mr Kwarteng says the cost is expected to come down as ministers negotiate new, long-term energy contracts with suppliers.
T he Chancellor says the OBR will publish a full economic and fiscal forecast before the end of the year, with a second to follow in the new year.
H e sets out the three priorities of the Government's so-called Growth Plan.
M r Kwarteng says energy bills aren't the only challenge facing the UK, saying: "Growth is not as high as it needs to be."
"As a Government, we will focus on growth – even where that means taking difficult decisions," he says.
M r Kwarteng also mentions the steps taken by the Bank of England to control inflation.
He says the Government considers the Bank's independence to be "sacrosanct".
In a letter to Andrew Bailey yesterday, however, the Chancellor appeared to take a more hostile tone.
K wasi Kwarteng begins with what he says is the issue most worrying Brits today – the cost of energy.
He confirms the Energy Price Guarantee, which caps energy bills for households at an average of £2,500 per year from October.
He also outlines the equivalent relief scheme for businesses.
Third is the energy markets financing scheme, alongside the Bank of England, that provides a guarantee for banks to offer emergency cash to energy firms.
He adds: "The Prime Minister has acted with great speed to announce one of the most significant interventions the British state has ever made."
T he Chancellor is on his feet in the House of Commons - follow live here.
M ini-Budget, fiscal event, growth plan, call it what you want – it's about to start.
While it's technically not a full-blown Budget, today promises a raft of new fiscal policies as Liz Truss and Kwasi Kwarteng look to cement their tax-cutting, growth-boosting economic approach.
Stick with us for all the latest as it happens.
T he FTSE 250 has slumped to its lowest level since November 2020 as jitters continue to grip markets ahead of the mini-Budget.
The mid-cap index fell 0.3pc in early trading as traders await details of Kwasi Kwarteng's tax-cutting plan, which the Government says will boost growth.
K wasi Kwarteng has left Number 11 Downing Street and is on his way to the House of Commons to deliver his mini-Budget.
We're expecting things to kick off at around 9.30.
Chancellor leaves No11 for the commons for the fiscal event/mini budget/growth plan/biggest tax cutting statement in 30 years* *delete as appropriate pic.twitter.com/JivUyQ28JA
L iz Truss is facing criticisms that her tax-slashing plans put the public finances at risk and could fuel inflation.
Pressed about who will pay for the UK's ballooning debt, Simon Clarke said: "The prescription here is that we get a better underlying growth that unleashes the tax receipts that will allow us to both grow the economy and also to get on top of that debt."
The Levelling Up Secretary said stagnating growth made it "very hard to manage the burden of our debt and the challenge of funding our public service".
He told the BBC that the UK was facing "major inflationary pressures", making it more even important to deliver growth.
It comes after the Bank of England warned the UK may already be in a recession.
A fter a muted start to trading, the FTSE 100 is now firmly on the back foot.
The blue-chip index dropped 0.5pc, even as traders gear up for a tax-cutting mini-Budget that's aimed at boosting the economy.
Oil giant BP and Shell were the biggest drag on the index, falling 2.5pc and 3pc respectively as crude prices slipped. Banking stocks including NatWest and Lloyds were also in the red.
Bucking the trend were major healthcare stocks. AstraZeneca was the biggest boost, rising as much as 1pc, while GSK also gained ground.
The domestically-focused FTSE 250 slipped 0.2pc, with Aston Martin leading the declines.
H ighlighting the torrid economic backdrop of today's announcements, a new survey shows UK consumer confidence slumped to a new record low in September.
GfK's measure of sentiment fell five points to -49 – the lowest since it started in 1974. That's worse than economists' forecasts.
With inflation near a four-decade high and energy bills set to rise again in October, Brits are facing the biggest squeeze on living standards for decades.
Liz Truss and Kwasi Kwarteng are hoping that their package of tax cuts will boost economic growth and make consumers a little less pessimistic about their finances.
UK @GfK consumer confidence drops to another all-time low (records started in 1974) ? Maybe most concerning aspect: GfK recorded no change to responses after Sept 8 (Truss cost-of-living statement). Kwarteng has a job on his hands to bolster confidence.https://t.co/tablpx3quN pic.twitter.com/aSorThIs7Q
S terling has plunged again this morning as traders gears up for Kwasi Kwarteng's tax cuts.
The pound dropped below $1.12 for the first time since 1985, extending its recent run of losses. Meanwhile, the euro also dropped to its lowest against the dollar since 2002.
L iz Truss and Kwasi Kwarteng have insisted that their tax-cutting plans will drive economic growth, potentially giving a much-needed boost to stocks.
The expected reversal of planned corporation tax rises could give a significant boost to shares, especially the domestically-focused FTSE 250.
But here's a closer look at specific sectors.
The Chancellor has already confirmed that the recent rise in National Insurance will be reversed. That, combined with energy bill support, could put a bit more money back in consumers' pockets. That's good news for retailers.
Much like retail, any boost to consumer confidence will help the hospitality sector. In addition, Liz Truss has reportedly considered cutting business rates, while a temporary cut to VAT could also be on the cards.
Housebuilders were given a big boost on Wednesday following reports the Government could cut stamp duty. They'll be hoping this is confirmed.
Ending the cap on bankers' bonuses will be a headline-grabbing move, but it's unlikely to move banking shares much. Investors are more focused on the continued rise in interest rates, which will boost margins for lenders.
T oday's mini-Budget will be a "game-changing" fiscal event.
That's according to Levelling Up Secretary Simon Clarke, who stressed that the Government was driven by the view that lower taxes will increase economic growth.
He said: "We're going to see that translated into action through what I think will be a really important and game-changing financial statement."
I t's a cautious start to the day for the FTSE 100, with traders on tenterhooks ahead of this morning's mini-Budget.
The blue-chip index slipped marginally into the red at 7,153 points.
P at McFadden, shadow chief secretary to the Treasury, has hit out at the upcoming announcements, saying they're not in reality a plan for growth.
He said: "What today looks like is the Government taking an enormous gamble with the public finances by taking a series of measures and putting it all on borrowing, and calling it a plan for growth."
Mr McFadden said it didn't appear as if the Government was going to try to raise any revenue, as he repeated Labour's call for a further windfall tax on oil and gas companies.
He told the BBC: "This isn't really a plan for growth, it is a return to some very old-style Tory polices based on the belief that if you make those who are already wealthy even wealthier it will trickle down to the rest of us."
He said the "flip-flopping and chaos" was a threat to stability, adding: "It will be the third change in National Insurance in six months. It is the legislative equivalent of digging a hole and filling it back in again."
S imon Clarke has also hit back at suggestions that Liz Truss and Kwasi Kwarteng are engaging in "trickle-down economics", branding such claims "nonsense".
He told Sky News: "This whole term trickle-down is such a nonsense and is itself a centre-left mischaracterisation of what this Government is all about. We need to grow the economy because a more successful economy is good for everybody."
He called it a "virtuous circle".
The former chief secretary to the Treasury also defended his decision to now support a reversal of the rise in National Insurance.
He said: "I served the Government of the day and with a new prime minister comes new prerogatives, but to be clear, we're going to stand behind the investment in our NHS and social care that was announced by Boris Johnson as Prime Minister, we're just going to pay for it through general taxation rather than through a specific levy."
L evelling Up Secretary Simon Clarke is doing the media rounds this morning, and (unsurprisingly) he's defending the Government's tax-slashing policies.
He says today's measures are not a gamble, hitting back at comments from the IFS earlier this week.
Mr Clarke told Sky News: "It's about asserting that we want to get back to the trend of growth this country enjoyed before the 2008 financial crisis."
T he mini-Budget comes against the backdrop of growing tensions between the Government and the Bank of England over how to tackle the economic crisis.
Szu Ping Chan and Daniel Martin report:
The Chancellor told Governor Andrew Bailey that claims that near double-digit inflation was mainly driven by the war in Ukraine were less credible now that the Government had taken action to hold down energy bills, a swipe at the Bank's record on controlling inflation.
In a letter to Mr Bailey that marked a change in tone compared with Rishi Sunak, Mr Kwarteng said: "Current high inflation is making it hard for households to pay their energy bills and meet their other living costs, whilst placing further costs on businesses and reducing the certainty they need to grow.
"Inflationary pressures are becoming more domestically driven".
He stressed it was the Bank's job to ensure inflation, which currently stands at 9.9pc, returns back to its 2pc target.
"I know and expect that the MPC will continue to take the forceful action necessary to achieve this," he said.
Read the full story here
K wasi Kwarteng has come under fire for refusing to provide the usual fiscal forecasts alongside his mini-Budget.
The influential Treasury Committee was among those to argue that the major fiscal even should be accompanied by figures from the Office for Budget Responsibility.
However, the Chancellor is expected to set out a timetable for the OBR to publish its assessment of the government's tax and spending policies.
Mr Kwarteng has insisted he remained "committed to two forecasts in this fiscal year, as required by legislation".
W e've had a few tasters of what's to come in the mini-Budget this morning, though there's still potential for a few surprises.
One thing is certain though – today's policies will focus on slashing taxes and boosting growth.
Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise.
This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s. We are determined to break that cycle. We need a new approach for a new era focused on growth.
That is how we will deliver higher wages, greater opportunities and sufficient revenue to fund our public services, now and into the future.
All eyes are on Kwasi Kwarteng today as he prepares to unveil a string of tax cuts in his mini-Budget.
Economists at the Institute for Fiscal Studies have said today's announcements are likely to amount to "the biggest tax-cutting fiscal event since Nigel Lawson’s budget of 1988."
The Chancellor has already confirmed that the recent rise in National Insurance will be scrapped from November.
Other measures expected include scrapping the planned increase in corporation tax and slashing stamp duty, as well as ending the cap on bankers' bonuses and creating new low-tax investment zones.
There could be more, too, with Mr Kwarteng set to announce two "rabbit out the hat" policies that haven't been reported.
1) Borrowing costs surge as Bank of England forges ahead with bond sale Plus: Bailey bets that Truss’s energy bailout will save Britain from rocketing inflation
2) Net zero rules watered down in scramble to boost North Sea drilling Rees-Mogg weakens climate 'checkpoint' regulations as part of efforts to expand production
3) Director of The Guardian quits in protest at 'imperial' editor's choice of chief executive Current boss Anna Bateson's appointment was pushed by editor Katharine Viner
4) BT demands staff return to the office Telecoms giant says new approach is “fundamental to the success of the business”
5) Pubs ditch cask ale for kegs of fizzy craft beer as landlords fear downturn in visits Sales across the hospitality sector remain well below pre-pandemic levels, consultant suggests
Asian markets fell again on Friday as part of a global sell-off fuelled by recession fears after central banks around the world ramped up interest rates to fight decades-high inflation.
Hong Kong, Shanghai, Sydney, Seoul, Singapore, Wellington, Taipei and Manila all dropped.
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