LONDON (Reuters) – British finance minister Kwasi Kwarteng refused to say on Thursday if he would stick with his plan not to raise business taxes as media reported Prime Minister Liz Truss was rethinking an economic programme that plunged markets into turmoil.
Truss is under pressure to change tack on the package that has roiled markets, with some investors and her own lawmakers calling on her to reverse a plan for 43 billion pounds ($48 billion) of unfunded tax cuts, including scrapping an increase in corporation tax from 19% to 25%.
Following is a snapshot of related events, comments and explanations:
MARKET REACTION
* The pound surged along with UK stocks, while the government’s borrowing costs fell on Thursday after reports that Truss is discussing changes to her fiscal plan.
MAJOR PLAYERS
* Finance minister Kwasi Kwarteng said he was focused on delivering on his “mini-budget” and economic growth after media reported the government was considering reversing parts of the plan.
* “Our position hasn’t changed. I will come up with the medium-term fiscal plan on the 31st of October, as I said earlier in the week, and there will be more detail then,” Kwarteng said.
* UK defined benefit pension schemes were not – and are not – at risk of collapse due to recent sharp moves in the British government bond market, the chief executive of The Pensions Regulator said.
* Some investors suspect the Bank of England will have to continue buying government bonds, even if not immediately after Friday’s scheduled end of emergency interventions.
* IMF Managing Director Kristalina Georgieva said she had discussed with Kwarteng the importance of “policy coherence and communicating clearly”.
WHAT’S BEHIND THE CRISIS?
* The Bank of England has been forced into emergency bond-buying to stem a sharp sell-off in Britain’s 2.1 trillion pound ($2.3 trillion) government bond market that threatens to wreak havoc in the pension industry and increase recession risks.
* The sell-off began after finance minister Kwasi Kwarteng’s tax-cut announcement.
* The BoE interventions have highlighted a growing segment of Britain’s pensions sector – liability-driven investment.
* LDI helps pension funds use derivatives to “match” assets and liabilities to avert risks of shortfalls in payouts, but the soaring interest rates have triggered emergency collateral calls for those funds to cover the derivatives.
UK government bond yields surge https://graphics.reuters.com/GLOBAL-THEMES/lbvgnqdxapq/chart.png
(Compiled by Toby Chopra)
