Last Friday (23rd), the new government led by the new British Prime Minister Zhuohuisi launched the most aggressive tax reduction plan in nearly 50 years. Concerned regarding the deterioration of the British finances, the British pound and British government bonds were sold off sharply by the market. The Bank of England made an emergency intervention in the bond market yesterday to shore up British financial markets, which have been hit by the government’s aggressive tax cuts. However, one wave following another, Zhuo Huisi is facing pressure from the party because of his chaotic fiscal policy.
Bank of England buys unlimited UK government bonds
The new policy announced by the Tracy’s government on Friday comes amid a warning from the Bank of England that Britain may already be in recession. Concerned regarding the deterioration of the UK’s finances, the pound once morest the US dollar plummeted a few days ago, hitting a record low of 1.0379. British government bonds were also sold off. The 10-year government bond yield rate once soared to 4.5%, and the 20-year government bond yield rate was approaching. 5 centimeters.
【read more】How the Bank of England stepped in to intervene in the bond market
The Bank of England rushed into the market yesterday to buy government bonds worth 1 billion pounds, and said that until October 14, it will buy as many government bonds as needed and in unlimited quantities. GBP/USD rebounded sharply overnight, once regained the 1.09 level, nearly recovering its losses since last Friday, and last fell back to 1.0789, down 0.8619%. The UK 10-year government bond yield fell to 4.0070%, and the 20-year government bond yield fell to 4.134%.
Monetary Tightening vs Fiscal Easing
Like the rest of the world’s major economies, the UK faces stubbornly high inflation, and the country’s central bank is aggressively raising interest rates to curb the rampant situation, but recession fears are also plaguing it amid aggressive monetary tightening. U.K. Therefore, Zhuohuisi’s new policy makes the United Kingdom face the embarrassing situation of monetary tightening and fiscal easing at the same time.
【read more】New UK chancellor pushes biggest tax cut in 50 years
Commonwealth Bank of Australia strategist Carol Kong wrote in a note to clients that the Bank of England’s bond purchases might ease the UK government’s borrowing costs, but did not resolve the tension between fiscal easing and monetary tightening.
It is said that Zhuo Huisi is facing pressure from the party
When the country’s central bank is trying to maintain the stability of the financial market, on the other side, it is rumored that Zhuohuisi’s policy has caused chaos in the financial market. In the face of pressure from the Conservative Party, Zhuohuisi may become the shortest-lived prime minister in British history.
British “Sky News” quoted sources as saying that a former Prime Minister Johnson’s cabinet minister criticized Zhuohuisi’s government for playing with people’s livelihood with the economics level of the college entrance examination, and even said that Conservative MPs had written to Brady, chairman of the 1922 Committee, to propose to Zhuohuisi vote of confidence.
Conservative MP Simon Hoare, who backs Rishi Sunak’s rival Rishi Sunak as prime minister, accused the new government’s policies of triggering a market rout. “This incompetent madness cannot continue”.
It is reported that the new government failed to contact party members and explain relevant policies or get them to support them, which caused dissatisfaction among party members. Some MPs pointed out. The number of people who oppose Zhuohuisi has not yet posed a major threat to her, and it is too early to say the level of serious mistrust in Zhuohuisi.
Investors were quoted by Archyde.com as saying that they were worried that the new policy of Zhuohuisi will force the Bank of England to raise interest rates sharply, which will accelerate the recession of the British economy. The only way for the new government to restore confidence is to reverse the tax cuts, but there seems to be no such sign now.
Source: Comprehensive report
Text by FORTUNE INSIGHT
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