Investment - Articles - Pound jumps briefly on great Truss retreat on tax


Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown comments on the great Truss retreat on tax.

 ‘‘The great Truss retreat on tax saw the pound surge briefly in value, jumping above $1.12, up by round 1 per cent in a matter of minutes just after rumours swirled about the move. It’s lost some of its bounce though as the financial markets digest the latest political turmoil to beset the UK. The Prime Minister was hoping to carve out a reputation as the new Iron Lady, instead she will be seen as highly malleable. She has been manipulated into this U-turn after senior conservatives yesterday coming out in open revolt at the Treasury’s decision to scrap the 45p tax band for the wealthy while refusing to rule out cuts to welfare for the poorest.

 Admitting to a communication mistake rather than a serious policy mishap didn’t cut it. Now this embarrassing climb down, taking unfunded tax cuts off the table, which Chancellor Kwasi Kwarteng has called a distraction, will help reassure the markets a little that the more reckless nature of this new administration can be reined in by the Conservative party.

 A big part of the questionable battle plan to try and stimulate growth is being ripped up, which may actually help calm the feverish rise in borrowing costs for companies, homeowners and the government. But the credibility of the government in providing a steady hand on the tiller at a time of such economic uncertainty has been lost, perhaps irrecoverably.

 Kwasi Kwarteng is set to cut a lonely figure on stage at the Conservative party conference later, given that his Prime Minister put the blame for the fiscal bombshell at the door of no.11. This effort at deflection could be an insurance policy, leaving Liz Truss with the option of changing tack and Chancellor in one fell swoop, a strategy which is more likely to be employed if the pound’s volatility continues in the weeks and months to come.’’
  

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