Prime Minister Liz Truss has insisted the government’s tax-cutting measures are the “right plan” to get the economy growing in the face of rising energy bills, despite recent market turmoil.
Chancellor Kwasi Kwarteng's announcement of his mini-budget on Friday has been met with wide criticism and mounting calls – including from the International Monetary Fund (IMF) – for a U-turn on some of the policies announced after the pound sunk to a record low of 1.03 against the US dollar on Monday.
On Wednesday, the Bank of England launched an emergency government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”. But, in her first public comments since the mini-budget market chaos, Ms Truss defended Chancellor Kwasi Kwarteng’s measures, insisting “urgent action” was needed, although she admitted the government’s decisions have been “controversial”.
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The Prime Minister told BBC Radio Leeds: “We had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.
“Of course that means taking controversial and difficult decisions but I am prepared to do that as Prime Minister because what is important to me is that we get our economy moving, we make sure that people are able to get through this winter and we are prepared to do what it takes to make that happen.”
The FTSE 100 Index has also been hit by market volatility amid the bond sell-off and wider global recession fears, falling by more than 2%at one stage in early trading on Thursday after a rollercoaster ride on Wednesday. Ms Truss faced public questioning about her economic plans for the first time following the fallout from the mini-budget as she toured regional BBC radio stations in a morning round of interviews, which left listeners unimpressed.
Asked whether she would stick to her plan, Ms Truss told BBC Radio Norfolk: “This is the right plan that we have set out. This is about making sure people are going into the winter not worried about high fuel bills, which is what we were looking at. It was simply unconscionable that we could have allowed that to happen.”
She acknowledged the measures announced in the mini-budget last week would take time to have an effect and sought to assure that the Chancellor was working “very, very closely” with Bank of England governor Andrew Bailey.
“We are facing very difficult economic times. We are facing that on a global level,” she said. “Of course lots of measures we have announced won’t happen overnight. We won’t see growth come through overnight. What is important is that we are putting this country on a better trajectory for the long term.”
The Bank of England announced it was stepping in to buy up to £65 billion worth of government bonds – known as gilts – at an “urgent pace” after fears over the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market, which left some UK pension funds teetering on the brink of collapse.
The Bank’s extraordinary intervention effectively saw it bail out the Government and came amid echoes of the 2008 financial crisis. It stepped in as the market woes forced pension funds to sell UK government bonds to head off worries over their solvency, which threatened to see them suffer severe losses.
It came after the value of some long-dated bonds had halved in value in recent days. The gilts sell-off eased after the emergency action, while the pound has also steadied since Monday’s record plunge – standing at 1.08 US dollars thanks in part to the Bank’s move to signal that “significant” interest rate hikes may be on the way to calm sterling and tame inflation.
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