[ad_1]
But that recovery has stalled. On Monday, the pound was trading around $1.10 on expectations that the government’s plan would expand the economy as promised and instead require major public spending cuts.
Fitch Ratings said on Monday it expected the British economy to contract by 1 percent next year, following “extreme volatility” in British financial markets and the prospect of “sharply higher” interest rates. Last month, it forecast a 0.2 percent decline for next year.
“Rising funding costs, tighter credit conditions, including mortgage borrowers, and increased uncertainty will outweigh the impact of looser fiscal policy”, rating agency analysts wrote. They expect Britain’s economy to enter recession this quarter. The agency has already changed its rating outlook for Britain to negative.
It was just one of many criticisms of the government’s plans. For example, the International Monetary Fund encouraged the government to reassess tax cuts, which it said would increase inequality.
But Mrs Truss, seeking to reverse years of slow growth and weak productivity, is clear that she wants to run the economy differently than her predecessor. An early decision was to fire the Treasury’s top civil servant, Tom Scholer, a move that rattled some analysts. On Monday, the government announced his successor, James Bowler, who will transfer from the Department of International Trade but previously spent two decades at the Treasury.
Even as the government takes conciliatory measures, there are signs of distress in financial markets. On Monday, the Bank of England said it would expand its intervention in the bond market. The bank will increase the size of daily auctions in the bond-buying program it was set to support. Pension funds, after the market turmoil threatened Britain’s financial stability.
In the last eight trading days, the bank bought a total of only 5 billion pounds of long-dated government bonds, despite setting a limit of 5 billion a day. With markets wondering what will happen when bond-buying operations end on Friday, the central bank announced it would expand its support. As well as increasing the size of the auction, it will establish a new collateral facility to try to ease the liquidity problems faced by pension funds. That feature will continue later this week.
[ad_2]
Source link
