Truss ‘prepared to make controversial decisions’ as UK remains on financial brink

London: British Prime Minister Liz Truss has defended her government’s mini-budget which has left the country on the edge of a full-blown financial crisis, saying she is prepared to make “controversial and difficult decisions”.

The central bank made the emergency intervention, planning to spend £5-billion a day for the next 13 days, as it warned of “material risk” to UK stability and pension markets amid the chaos that has sent government borrowing costs soaring.

British Prime Minister Liz Truss said the world was facing “very, very difficult economic times”. Credit:Bloomberg

In a highly unusual move that economists warn could fuel inflation, the central bank pledged to buy billions of pounds of government debt to prevent pensions being put at risk.

Truss, who has been in Downing Street for less than a month, said the government’s massive tax cuts were needed to “get our economy growing”, as she commented publicly for the first time since the Bank of England’s extraordinary intervention to help calm markets after the borrowing plans triggered economic turmoil.

“We had to take decisive action to help people through this winter and next winter. I understand that families are struggling with their fuel bills,” Truss told BBC Radio Leeds.

“And we had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.

“And 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.”

The value of the pound has collapsed to record lows against the US dollar, and British bonds have plunged since Friday, when UK Chancellor Kwasi Kwarteng unveiled his “mini” budget involving £45 billion of debt-financed tax cuts.

Truss said the world was facing “very, very difficult economic times” as she also insisted Kwarteng, was working “very, very closely” with the Bank of England.

Kwarteng sought to reassure investment bank executives on Wednesday the government had sound fiscal plans, in the face of a meltdown in British assets. But executives have warned the government that a planned November 23 fiscal update was too far away, and it needed to make its plans clear earlier.

The pound lost 1 per cent against the US dollar to trade just below $US1.08 on Thursday, after gaining in the wake of the central bank’s intervention.

The action taken by the central bank triggered a sharp rally in UK assets, with the 30-year gilt yield posting its steepest daily drop on record.

The long-dated debt instrument ended Wednesday with a yield of 3.94 per cent after touching a 20-year high of more than 5 per cent earlier in the session. Yields on 10-year UK debt fell to 4.01 per cent from 4.59 per cent. Yields fall as investors buy the bonds, boosting prices.

The government’s policy, which includes removing the 45 per cent tax rate for those on incomes of more than £150,000 ($250,000) and scrapping the cap on bankers’ bonuses that were imposed by the EU after the financial crisis, have reopened wounds within Conservative ranks amid months of infighting since Boris Johnson was ousted.

Downing Street was forced to reject calls from Conservative MPs on Wednesday for Kwarteng, a close ally of Truss, to resign after the market’s response to their economic package.

Lord Clarke, a Tory former chancellor, argued on Thursday that no other Conservative government would have made a “mistake” like Kwarteng’s mini-budget.

“I still hope in two years’ time, they might look like a normal, competent, Conservative government because no Conservative government in my lifetime would ever have made a mistake of this kind,” he told Times Radio.

“Fiscal discipline or good housekeeping, as Margaret (Thatcher) always used to say, was one of the very strong cards that the government had because it was regarded as good at running the economy by the public.”

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