The IMF and ratings agency Moody’s criticized Britain’s new economic strategy, as investors braced for more havoc in bond markets that has already forced the Bank of England (BOE) to promise “significant” action.
The statements overnight from the IMF and Moody’s piled more pressure on new British Chancellor of the Exchequer Kwasi Kwarteng to reassess his policy, which sparked a collapse in the value of British assets in the past few days.
New British Prime Minister Liz Truss of the Conservative Party came into office on Sept. 6 saying she wanted to snap the economy out of years of stagnant growth with deep tax cuts and deregulation.
Photo: EPA-EFE
Kwarteng on Friday set out a plan to cut taxes through huge increases in borrowing that he believed would be paid back by doubling Britain’s rate of economic growth.
At the same time, the government is subsidizing energy bills for households and businesses at a cost of £60 billion (US$63.5 billion) in the next six months alone.
The IMF said the proposals, which sent the pound to an all-time low of US$1.0327 on Monday, would likely increase inequality and it questioned their wisdom.
“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,” an IMF spokesperson said.
Deutsche Bank AG research strategist Jim Reid described the “rebuke” as “quite scathing.”
The IMF holds symbolic importance in British politics: Its bailout of Britain in 1976 following a balance-of-payments crisis has long been regarded as a low point in the kingdom’s modern economic history.
In a blunt release, Moody’s said large unfunded tax cuts were “credit negative” for the UK.
“A sustained confidence shock arising from market concerns over the credibility of the government’s fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the UK’s debt affordability,” Moody’s said.
The IMF said a budget due from Kwarteng on Nov. 23 would provide 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.”
Kwarteng has said the government is committed to fiscal responsibility in the medium term and that his full budget in November would set out debt-cutting plans.
On Tuesday, Bank of England chief economist Huw Pill said the central bank was likely to deliver a “significant” rate increase when it meets in November, adding that financial market upheaval would have a big impact on the economy and would be factored into its next forecasts.
British government bonds have sold off at a ferocious pace in the past few days, with 10-year borrowing costs on track for their biggest calendar month rise since at least 1957, according to a Reuters calculation.
The pound was down 0.4 percent to trade at US$1.0690 at 6:28am GMT.
“It is hard not to draw the conclusion that this will require a significant monetary policy response,” Pill told the CEPR Barclays Monetary Policy Forum.
With analysts still speculating about Britain’s future financial direction and markets volatile, a growing number of mortgage providers, unable to price loans, suspended sales.
Stephen Garrett, a 27-year-old graduate student, always thought he would study in China, but first the country’s restrictive COVID-19 policies made it nearly impossible and now he has other concerns. The cost is one deterrent, but Garrett is more worried about restrictions on academic freedom and the personal risk of being stranded in China. He is not alone. Only about 700 American students are studying at Chinese universities, down from a peak of nearly 25,000 a decade ago, while there are nearly 300,000 Chinese students at US schools. Some young Americans are discouraged from investing their time in China by what they see
MAJOR DROP: CEO Tim Cook, who is visiting Hanoi, pledged the firm was committed to Vietnam after its smartphone shipments declined 9.6% annually in the first quarter Apple Inc yesterday said it would increase spending on suppliers in Vietnam, a key production hub, as CEO Tim Cook arrived in the country for a two-day visit. The iPhone maker announced the news in a statement on its Web site, but gave no details of how much it would spend or where the money would go. Cook is expected to meet programmers, content creators and students during his visit, online newspaper VnExpress reported. The visit comes as US President Joe Biden’s administration seeks to ramp up Vietnam’s role in the global tech supply chain to reduce the US’ dependence on China. Images on
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
New apartments in Taiwan’s major cities are getting smaller, while old apartments are increasingly occupied by older people, many of whom live alone, government data showed. The phenomenon has to do with sharpening unaffordable property prices and an aging population, property brokers said. Apartments with one bedroom that are two years old or older have gained a noticeable presence in the nation’s six special municipalities as well as Hsinchu county and city in the past five years, Evertrust Rehouse Co (永慶房產集團) found, citing data from the government’s real-price transaction platform. In Taipei, apartments with one bedroom accounted for 19 percent of deals last