Closing post
Time to wrap up, after another dramatic day in the City as the UK’s financial – and political – crisis continues.
UK assets have rallied sharply tonight after the new chancellor, Jeremy Hunt, ripped up his predecessor’s mini-budget, further shredding prime minister Liz Truss’s dwindling authority.
The pound is heading towards its best day since March 2020 against the US dollar, having gained more than two-and-a-half cents to $1.143 tonight.
Bond price have surged, on relief that many of the unfunded tax cuts announced by Kwasi Kwarteng have been ditched, a move that will bring in £32bn.
Hunt surprised the markets by abandoning plans to cut the basic rate of income tax to 19%, as well as dropping a cut to the dividends tax, and reforms to the taxation of contractors, ditching the new VAT-free shopping scheme, and no longer freezing alcohol duty rates.
Hunt is also drastically scaling back the government’s flagship plan to cap rising energy prices – from two years of support to just six months.
UK borrowing costs have tumbled, with the yield (or interest rate) on 30-year UK gilts down a massive 40 basis points, to 4.37% from 4.77% on Friday.
The money markets have also dialled down their forecasts for interest rate increases. The Bank of England is now expected to raise interest rates to around 5.1% by next summer, down from over 6% a week ago.
📉Here's what a difference Jeremy Hunt's move today has made to the expected path of UK interest rates from the the Bank of England.
— Ben Chu (@BenChu_) October 17, 2022
On Friday markets priced in rates rising to 5.55%
As of today, they see them peaking at only 5.15%...👇 pic.twitter.com/VEvIjMQpeB
The drop in borrowing costs, and hopes that interest rates will rise less sharply, should bring down the size of the UK’s fiscal black hole.
However, the Institute for Fiscal Studies warned that Hunt must go further to get debt falling – the chancellor will reveal his plans for spending cuts in two week’s time.
Our Politics Live blog has the latest details, as the chancellor updates MPs on his plans:
Here’s today’s main stories:
Britain’s new chancellor Jeremy Hunt is creating an Economic Advisory Council to provide him with “independent expert advice”.
Hunt has told MPs that the council’s members would be Rupert Harrison, who worked with former chancellor George Osborne (who imposed years of growth-sapping austerity a decade ago), along with former Bank of England policymakers Gertjan Vlieghe and Sushil Wadhwani, and Karen Ward, chief market strategist at JP Morgan.
This quartet will help Hunt steer the economy out of the crisis, and the slump in confidence in the UK among investors.
UK's Chancellor Hunt:
— DailyFX Team Live (@DailyFXTeam) October 17, 2022
- Difficult decisions will be announced in the medium-term fiscal plan on October 31st.
- An economic advisory council is being formed
- I want independent expert advice#Truss $GBP
