World

Britain’s under-fire finance minister Kwasi Kwarteng on Monday vowed to press on with his controversial economic reform plans, despite announcing a dramatic U-turn on a controversial tax cut for high earners.

The proposed cut was part of a debt-driven economic package that has bombed with the markets, the electorate and much of the ruling Conservative party.

The abrupt reversal raised questions about his and Prime Minister Liz Truss’s right-wing policy agenda, less than a month after taking power and a day after both vowed to stay the course.

“What a day. It has been tough,” Kwarteng said in a speech to the Tories’ annual conference in Birmingham, central England.

But he told delegates that “we need to focus on the task in hand”, implicitly criticising his Tory predecessors by saying there was a need to boost the economy out of its “slow, managed decline”.

“To grow the economy we really do need to do things differently,” he said.

Kwarteng pointedly avoided any specific mention of his about-face on the proposed scrapping of the 45 percent top rate of income tax.

But he insisted his and Truss’s contentious plans, which include axing a cap on bankers’ bonuses and reversing a planned rise in corporation tax, as well as a recent hike in national insurance contributions, were “sound” and “credible”.

“It will increase growth,” he added in the speech, which was delayed by an unspecified security alert at the venue. Police lifted the alert about an hour later.

– Political storm –

Earlier, Kwarteng said he had never considered resigning over the furore caused by the proposals, saying only that the decision to drop the tax cut was because it had become a “distraction”.

On the markets, the intention to pay for the cuts with billions more in extra borrowing had sent the pound tumbling to a record low against the dollar and UK government bond yields soaring.

The pound rebounded Monday as the government partially reversed course. 

Nevertheless, Kwarteng and Truss remain in the eye of a political storm, given the perceived unfairness of the package, which could yet see cuts to spending and benefits amid Britain’s worst cost-of-living crisis in generations.

As late as Sunday, the finance chief had been due to tell the conference that “we must stay the course”, according to a preview of his speech released by the Conservatives.

Truss on Sunday admitted communication errors in how the September 23 economic package had been presented, but agreed she was “absolutely committed” to abolishing the top tax rate. 

Within 24 hours, though, the 47-year-old prime minister — only in the role since September 6 — had performed one of most striking government U-turns in recent memory.

Truss told the BBC she had not discussed axing the high-earners’ tax band with her cabinet, who only seemed to learn of the reversal along with the public on Monday.

She also appeared to distance herself from the move by claiming “it was a decision that the chancellor made”, but her spokesman downplayed the comments.

“The prime minister was clear that… fiscal events are the responsibility of the chancellor — that’s all she was setting clear,” he told reporters Monday.

Out of a total tax package worth £45 billion ($50 billion), the top rate cut would have cost some £2 billion — relatively small, but outsized for its political impact.

Tory MPs who backed former finance minister Rishi Sunak — Truss’s rival in the recent Tory leadership race — had threatened to vote it down, raising the prospect of a major battle in the House of Commons.

Grant Shapps, who was refused a cabinet job by Truss, welcomed her scrapping the tax cut, which he told BBC radio had been planned with “grossly insensitive timing”.

– Credibility ‘destroyed’ –

With the U-turn, the stakes have soared for Truss as she prepares to close the party conference with a speech Wednesday.

A raft of polls have found Truss and her economic package deeply unpopular, alongside plummeting ratings for the Tories.

Some surveys showed Labour with mammoth leads of up to 33 points — its biggest since the heyday of its former prime minister Tony Blair in the late 1990s.

Labour’s finance spokeswoman Rachel Reeves said the climbdown “comes too late for the families who will pay higher mortgages and higher prices for years to come” following the recent market turmoil.

“The Tories have destroyed their economic credibility and damaged trust in the British economy,” she said.

Oil prices jumped Monday on expectations of an OPEC output cut, while disappointing US data sent the dollar lower and stocks higher.

Investors have on edge over worries that rising interest rates, aimed at fighting sky-high inflation, could spark recessions.

With a key business survey flagging a slowing of the US economy, the dollar and US government bond yields moved lower as the US Federal Reserve may not need to raise interest rates as much as markets have feared to get a grip on inflation.

The Institute for Supply Management said its manufacturing index dropped 1.9 points to 50.9 percent, well below expectations and just barely above the 50-percent threshold indicating expansion.

That was the weakest pace in more than two years, and new orders fell by four percent.

Fed officials have indicated that the central bank will continue raising interest rates until inflation begins to drop, even if that means the US economy enters recession.

A slowdown means that a peak in interest rates may be close, and helped Wall Street stocks add to gains, with the Dow jumping 2.4 percent in late morning trade.

European stock indices moved higher following the US data, with Frankfurt’s DAX index ending the day 0.8 percent higher, the Paris CAC climbing 0.6 percent and London’s FTSE 100 adding 0.2 percent.

– Oil spikes before OPEC –

Oil prices leapt by more than five percent at one point as reports said OPEC and its allies are considering a major output cut to stem a price plunge caused by demand worries.

That stoked stubborn concerns about soaring inflation, which has been fuelled this year by sky-high energy prices after key producer Russia’s invasion of Ukraine.

“Any cut will no doubt frustrate consuming countries that are on the verge of recession after spending a year dealing with soaring energy costs on the back of the post-pandemic recovery and war in Ukraine,” said OANDA analyst Craig Erlam.

The 13 members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their 10 partners led by Moscow will physically meet on Wednesday for the first time since March 2020.

– Sterling gains on U-turn –

The British pound bounded above $1.13 following the latest US data, and after the UK government scrapped plans to axe its top income tax rate in the wake of finance minister Kwasi Kwarteng’s debt-fuelled mini budget which helped send sterling spiralling to a record dollar low of $1.0350 one week ago.

UK gilts, or government bonds, remain supported by an emergency Bank of England intervention after yields had rocketed following the mini budget announcement.

– ‘Dicey’ sentiment –

Shares in Credit Suisse plunged to a new low in Zurich on Monday as the scandal-plagued lender sought to ease concerns about its financial health.

Its stock tumbled 11.6 percent to 3.58 Swiss francs ($3.61) before clawing back most of the ground, ending the day with a drop of 0.9 percent at 3.94 francs.

The Financial Times reported that senior executives sought over the weekend to reassure big clients and investors about the bank’s liquidity and capital position due to concerns raised about its financial strength.

“Sentiment is still pretty dicey and Credit Suisse is definitely weighing heavily today on European equities,” Markets.com analyst Neil Wilson told AFP.

“A globally systemic bank requiring to raise capital would be a major event and could certainly undermine confidence in the banking system.”

Asian equities mainly fell Monday, with Hong Kong tumbling to its lowest point in more than a decade as fears for China’s economy deepens this year’s investor rout.

– Key figures around 1530 GMT –

New York – Dow: UP 2.4 percent at 29,399.70 points

EURO STOXX 50: UP 0.7 percent at 3,342.17

London – FTSE 100: UP 0.2 percent at 6,908.76 (close) 

Frankfurt – DAX: UP 0.8 percent at 12,209.48 (close)

Paris – CAC 40: UP 0.6 percent at 5,794.15 (close)

Tokyo – Nikkei 225: UP 1.1 percent at 26,215.79 (close)

Hong Kong – Hang Seng Index: DOWN 0.8 percent at 17,079.51 (close)

Shanghai – Composite: Closed for a holiday

Pound/dollar: UP at $1.1301 from $1.1170 on Friday

Euro/dollar: UP at $0.9834 from $0.9802

Euro/pound: DOWN at 86.91 pence from 87.75 pence

Dollar/yen: DOWN at 144.32 yen from 144.74 yen

Brent North Sea crude: UP 3.8 percent at $88.41 per barrel

West Texas Intermediate: UP 4.3 percent at $82.88 per barrel

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US reality star Kim Kardashian has agreed to pay a $1.26 million fine after unlawfully pushing a cryptocurrency on Instagram without revealing that she was paid to do so, the Securities and Exchange Commission announced Monday. 

The agency accused Kardashian, who has 331 million followers on Instagram — making her one of the top ten most followed people on the global social network — of failing to disclose that she was paid $250,000 to post about EMAX tokens, the crypto asset security being offered by EthereumMax.

The fine includes a penalty of $1 million plus $260,000, representing the amount Kardashian paid plus interest, the SEC said in a statement. She also agreed not to promote any crypto asset securities for three years.

“Are you guys into crypto????” the post, published in June of 2021, read.

“This is not financial advice but sharing what my friends just told me about the Ethereum Max token!”

SEC Chair Gary Gensler said the case was “a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn’t mean that those investment products are right for all investors.”

“We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals,” Gensler said in a statement.

– ‘Fully cooperated’ –

Reality-star-turned entrepreneur Kardashian came to fame with the US reality show “Keeping Up With the Kardashians,” which tracked the lives of her family members in Los Angeles.

The 41-year-old has steadily built her business empire in recent years — most visibly with her apparel and beauty brands — and has a net worth of $1.8 billion, according to Forbes.

She announced last month that she was branching into a new business arena with the launch of a private equity firm SKKY Partners.

“Ms. Kardashian is pleased to have resolved this matter with the SEC,” a lawyer for the star said in a statement sent to AFP.

She “fully cooperated with the SEC from the very beginning and she remains willing to do whatever she can to assist the SEC in this matter,” it said.

Kardashian “wanted to get this matter behind her to avoid a protracted dispute. The agreement she reached with the SEC allows her to do that so that she can move forward with her many different business pursuits.”

Other celebrities have been nabbed in the past by US authorities for illegally promoting cryptocurrencies, including boxer Floyd Mayweather, rap star DJ Khaled, actor Steven Seagal and rapper T.I.

In January, investors also launched a class action lawsuit against Kardashian, Mayweather and former basketball player Paul Pierce, as well as the two founders of EthereumMax, accusing them of artificially inflating the cryptocurrency’s price.

The ultra-volatile and poorly regulated crypto market has plunged in 2022.

Many central banks and financial market regulators have warned about the dangers posed by cryptocurrencies. But in the absence of a clear legislative framework, users are rarely informed when making their investments, say crypto critics.

Vodafone on Monday confirmed it was in talks over merging its UK operations with rival Three UK, owned by Hong Kong-based CK Hutchison.

Vodafone said a combination would allow “the necessary scale to be able to accelerate the rollout of full 5G in the UK”, which has been partly hampered by Britain banning Chinese giant Huawei from involvement in the technology offering faster downloads than 4G.

Vodafone said it would have a majority 51-percent stake and CK Hutchison the remainder in a non-cash deal.

A merger would “expand broadband connectivity to rural communities and small businesses” in the UK, the statement said.

“The UK government rightly sees 5G as transformational for the economy and society and critical to the UK becoming more competitive in an increasingly digital world,” it added.

Vodafone’s share price was up about three percent in late trading on London’s FTSE 100 index, which was rising only slightly.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, noted the possibility of “significant regulatory hurdles ahead for the deal, as the authorities weigh up the potential ceding ownership of more core UK infrastructure to an overseas owner”.

“Clearly much still needs to be agreed and it’s far from certain that this is a done deal, but if it is signed the joint venture with Three UK would create the biggest player in the UK mobile industry,” she added.

US manufacturing growth slowed in September to its weakest pace in more than two years amid a decline in orders, as well as easing price pressures, according to an industry survey released Monday.

The Institute for Supply Management said its manufacturing index dropped 1.9 points to 50.9 percent, well below expectations and just barely above the 50-percent threshold indicating expansion.

It was the weakest result since May 2020, ISM said.

“The US manufacturing sector continues to expand, but at the lowest rate since the pandemic recovery began,” ISM manufacturing survey chair Timothy Fiore said in a statement.

After companies surveyed for the past four months have reported “softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand,” he said.

The new orders index fell sharply, sinking into contraction territory at 47.1 percent, though production edged up slightly, the report said.

The prices index also fell, still showing rising prices at 51.7 percent, but posting the lowest reading since June 2020.

Seven of the industries surveyed contracted compared to August, while nine reported growth.

“Concerns of global economic slowdown are growing, and (we are) experiencing some customers pulling back orders,” a chemical products firm said.

Several others pointed to ongoing supply chain issues hampering output.

Factory employment slowed sharply, and while Fiore said there was an uptick in hiring freezes, “Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand.”