LONDON (Archyde.com) – The slump in the pound and British bonds is unlikely to restore investor confidence unless Finance Minister Kwartengu pulls back on stimulus measures, economists said.
The minister announced last week plans for tax cuts worth £45 billion. He then suggested additional tax cuts.
Former U.S. Treasury Secretary Larry Summers said the first step to rebuilding trust was to “not say anything unbelievable.” He said, “[The rise in UK long-term interest rates]is a sign of a loss of credibility,” and expressed the view that London’s survival as an international financial center would be adversely affected.
“The pound will break parity once morest the dollar and once morest the euro,” Summers said.
Finance Minister Kwartengu announced last week an economic stimulus package that would increase the government bond issuance plan for this year by £72bn. The minister said he plans to release a “mid-term financial plan” and the Office of Budget Responsibility’s (OBR) growth and debt forecasts on November 23.
“There are still no clear signs that the government will roll back or reconsider the fiscal strategy that caused the problem,” said JPMorgan economist Alan Monks. It needs to be withdrawn and reconsidered.”
Chris Scicluna, head of economic research at Daiwa Securities Capital Markets, said there was no reason for the market to read the doubts favorably before the mid-term fiscal plan was announced in late November. “There remains the possibility of an emergency rate hike (before the central bank’s monetary policy meeting on Nov. 3) at the urging of the market,” he said.
