December 10, 2022
Pound and gilt gain after Truss changes course on 45p tax rate cut

The pound and UK government debt rose on Monday as investors cautiously welcomed Prime Minister Liz Truss’s U-turn for plans to scrap the top income tax rate, just a day after pushing for the controversial measure.

Sterling rose 0.5 per cent to $1.121 against the dollar, close to the level it traded 10 days earlier, before Chancellor Quasi Quarteng announced a £45bn package of tax cuts including 45p for the highest earners. The end of the rate was included. Gilts also reversed their recent bearish share, with 10-year yields falling 0.03 percentage points to 4.05 percent, well above the 3.5 percent level before the “mini” budget.

Investors and analysts said the government’s willingness to change course after the original plans followed a violent gilt sell-off was encouraging. In turn, that sale threatened to trigger a liquidity crisis in the UK pension sector unless the Bank of England stepped in with a two-week emergency bond purchase.

But investors also stressed that the amount saved by maintaining the top tax rate – estimated at £2bn to £3bn a year – was small in the context of the overall financial package, adding that the government of the truce should There is a long way to go to gain the confidence of the markets.

“This is the smallest step to gain fiscal credibility,” said Jordan Rochester, forex strategist at Nomura. “It’s symbolic. The top tax rate got the most attention but actually had the lowest cost. It doesn’t mean it would suddenly ignite the Conservative Party’s fire in completely unethical financial easing. كازينو مباشر

Rochester said a recovery of sterling to pre-“mini” budget levels would be a good opportunity to renew negative bets against the currency. “Sterling doesn’t rally in a global growth slowdown,” he said. طريقة لعبة البوكر في الجزائر

$ per £ line chart reflects fiscal concerns that swing the pound

Gilt will issue a £2 billion shortfall for the rest of this year, in line with market expectations on 23 September, ahead of Quarteng’s announcements, according to James Athe, a portfolio manager at Aberden. The Office of Debt Management increased its planned loan sales by £70bn by the end of March.

“On the face of it, just looking at the numbers, we are right where we thought we were going to be,” Athe said. “But it was never just about the numbers. بلاك جاك 21 You had a whole load of other tax deductions, refusing to engage with the Office for Budget Responsibility.”

Athe said he has reduced his short bet against gilts since BoE’s intervention in the markets, but is ready for higher yields. “The fragility hasn’t gone away; nothing fundamentally has changed,” he said.

Some analysts worry that volatility on income tax could help strengthen the rest of Quarteng’s tax-cutting plans, which markets see as a threat to the stability of UK public finances.

“The decision to scrap the rate cut was one of the least expensive and potentially the most politically popular among Tory lawmakers,” said Vasilios Gakonakis, Emia head of foreign exchange strategy at Citigroup. “In a way, this could strengthen the chancellor’s position and allow him to proceed with the rest of his financial plan with even greater conviction.”

According to Gkionakis, the plan is likely to lead to a weaker pound as international investors have become reluctant to finance the UK’s current account deficit. “We would recommend selling here,” he said.

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