Tory fury at IMF wading in to condemn tax-cutting Budget as Kwasi Kwarteng pleads for ‘cool heads’ on Pound slump and launches fresh bid to reassure panicky markets
- Kwasi Kwarteng meeting investment bankers amid panic on financial markets
- Pound has dipped again after extraordinary intervention by IMF against Budget
- Tories have vented fury at the attack and urged Chancellor to ‘tune out’ criticism
Tories condemned the IMF today as the Pound dipped further and Kwasi Kwarteng launched a fresh bid to reassure panicky markets.
The Chancellor is meeting investment banks later after his tax-cutting Budget spooked traders – driving up government borrowing costs to eye-watering levels and hammering Sterling.
The currency had clawed back ground after reaching an all-time low of just $1.03 on Monday, but fell again this morning after the IMF criticised the ‘large and untargeted’ fiscal package.
There was fury at the international body urging Mr Kwarteng to perform a U-turn on his tax cuts in his next mini-Budget on November 23.
Mr Kwarteng tried to soothe nerves on the Conservative benches in a call with dozens of MPs last night, stressing the need for ‘cool heads’ and saying the government ‘can see this through’.
Kwasi Kwarteng is meeting investment banks later after his tax-cutting Budget spooked traders
The currency had clawed back ground after reaching an all-time low of just $1.03 on Monday, but fell again this morning after the IMF criticised the ‘large and untargeted’ fiscal package
Sterling fell back to $1.06 this morning after recovering to $1.08 yesterday.
Fears are growing that the currency will be at parity with the greenback unless the UK Government can arrest the slide.
The dollar has been extremely strong worldwide, but the Pound has struggled even against that backdrop.
The IMF’s intervention was met with fury inside the Treasury, after a day when markets had calmed and some government bonds had rallied.
Tory veteran John Redwood said: ‘The IMF were very wrong, as was the Bank of England, over the inflation which they now rightly worry about. They didn’t warn us or the other central banks in the run up to the big inflation, that the monetary policies of 2021 were far too loose, interest rates far too low, and the money printing was getting out of control. It’s a great pity they didn’t warn about that.
‘Now they should be looking forward. We should be fighting recession. Of course, we must be prudent with finances. But the truth is that if the austerity policies have their way and we have a big recession, the borrowing won’t go down, the borrowings will soar.’
Sir John offered a robust defence of Ms Truss’s tax-cutting plan, while also offering a sharp message to the Bank of England against further intervention on interest rates: ‘My message today is that the Government are right to see the main threat for the year ahead is recession not inflation because the good news is that all forecasters say inflation will come down a lot next year, and the sooner the better.’
Former Cabinet minister Lord Frost, a close ally of Liz Truss, said the body had always supported ‘conventional’ policies that had failed to boost growth.
He told the Telegraph that the PM and Chancellor should merely ‘tune out’ the criticism.
One Tory MP said: ‘At the end of the day it’s up to the elected Government to set fiscal strategy. I’m confident ministers will deliver a growing economy.’
In response to the criticism a Treasury spokeswoman said: ‘We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise caused by (Vladimir) Putin’s illegal actions in Ukraine.’
The Government was ‘focused on growing the economy to raise living standards for everyone’ and the Chancellor’s statement on November 23 ‘will set out further details on the Government’s fiscal rules, including ensuring that debt falls as a share of GDP in the medium term’.
Mr Kwarteng told City investors yesterday he was ‘confident’ the biggest tax cuts in 50 years, at £45billion, will succeed.
He is expected to emphasise to investment bankers today that ministers are pursuing reform to enhance growth, including a ‘Big Bang 2.0’ measures to reduce red tape for the City.
The International Monetary Fund was told to keep its nose out of British affairs last night after it launched a withering attack on the Government’s tax-cutting mini-Budget
Meanwhile, there are mounting concerns about a mortgage crisis as the Bank of England prepares to hike interest rates.
Lenders have withdrawn dozens of products as they struggle to adjust to the expectations of higher costs.
Investors have been betting on an increase of up to 1.5 percentage points in interest rates on, or before, the next meeting of the Bank of England’s Monetary Policy Committee in early November.
The Bank’s chief economist Huw Pill warned Threadneedle Street ‘cannot be indifferent’ to the developments of the past days, seen as a signal the cost of borrowing will have to go up to protect the pound and keep a lid on inflation.
‘It is hard not to draw the conclusion that all this will require significant monetary policy response,’ Mr Pill said.
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