“If the disruption in this market continues or worsens, there will be a material risk to UK financial stability,” the Bank of England said in a statement.
“To restore orderly market conditions,” the bank said purchases “will be carried out to the extent necessary to effect this outcome.” It is also said that the period is only for two weeks.
Just three weeks into the job, Truss is trying to make a bold — some would say dangerous — turnaround of the British economy, which has spooked investors. Truss has made no secret of his free market views. During the leadership campaign to replace Boris Johnson as Prime Minister, he said he was a tax collector from the start.
On Friday, the government delivered on that promise by announcing massive tax cuts and a major boost in borrowing. The plans include scrapping the top income tax rate of 45 per cent for those earning over £150,000 and removing the cap on bankers’ bonuses.
Markets gave their early verdict: On Monday, the pound sterling fell to an all-time low against the US dollar, at one point falling to 1.03 before recovering somewhat. Some economists have suggested the pound could fall against the dollar.
On Wednesday morning, the pound fell back to 1.06 after reaching 1.08 on Tuesday.
“This is a self-inflicted wound, unlike other volatility in the market,” Keir Starmer, leader of the opposition Labor Party, told the BBC on Wednesday morning. According to the latest YouGov poll, his party is up 17 percentage points. It was the party’s biggest lead against the Conservatives since Labor leader Tony Blair’s landslide victory in 2001.
Truss wants to call a general election by January 2025 and is keen to put his ideas on the economy into motion.
On Tuesday, the International Monetary Fund issued a rare condemnation of the new British government’s handling of its economic policy.
In an unusually blunt statement, it said it was “closely monitoring” the situation in the UK, saying the government’s plans would “increase inequality”. It said that untargeted fund packages are not recommended during periods of high inflation.
Truss and his chancellor Kwasi Kwarteng have defended their vision for the economy.
“They are willing to risk unpopularity because they think it will work in the long run,” says Tony Travers, a professor of politics at the London School of Economics.
He noted that unlike some of his Conservative Party predecessors, including Johnson and Theresa May, Truss’ free market views were more straightforward. His government wants to “move Britain into a lower-tax, more flexible economy, with higher-paid workers and talent that competes in the EU and globally.”
“Whether it works or not, only time will tell,” he said, “and whether it survives in the short term, time will soon tell.”
“Lifelong social media lover. Falls down a lot. Creator. Devoted food aficionado. Explorer. Typical troublemaker.”