Pound edges higher as Jeremy Hunt brings forward tax and spending plans – business live

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Jeremy Hunt will announce tax and spending measures today under darkening economic stormclouds.

Economists at the EY ITEM Club have predicted that the UK economy will drop into recession, and remain there until next summer, after downgrading its economic forecasts.

Its Autumn Forecast warned that:

High energy prices, elevated inflation, rising interest rates and global economic weakness mean the UK economy is expected to be in recession until the middle of 2023.

EY ITEM Club predicts that UK economic output fell by 0.3% in the third quarter of this year, and will then contract by around 0.2% each quarter from October-December to April-June 2023.

GDP is now forecast to shrink by 0.3% in 2023 – a downgrade from the 1% growth forecast in the summer, while the growth forecast for 2022 has been upgraded to 4.3% from 3.7%.

Investment bank Goldman Sachs also predicted the UK will enter a deeper recession than previously expected.

The US investment bank downgraded its outlook for Britain, forecasting the UK economy would shrink by 1% next year, down from its previous estimate for a 0.4% contraction.

Goldman Sachs said that last week’s u-turn to increase corporation tax to 25% was a factor:

“Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession.”

Jeremy Hunt’s decision to announce some tax and spending measures today is a wise decision, says Mel Stride, the Conservative MP who chairs parliament’s Treasury Committee.

“Strong start by Jeremy Hunt as chancellor,”

“Gets what needs to be done and is acting fast. Surprising markets positively on the upside with an early statement to House of Commons today is a wise move.

Message is ‘we get what needs to be done and it’s being sorted’.”

Today’s early morning statement shows just how nervous the government, and the Bank of England, are about the UK bond market, points out Ed Conway of Sky News:

We’ll find out at 8am if the bond market is calmed….

The pound is being lifted by rising investor confidence that more of Prime Minister Liz Truss’s package of unfunded tax cuts may be reversed, reports Bloomberg:

“It does indicate that they are moving back to some degree of fiscal probity and employing a slightly more prudent fiscal outlook,” said Peter Kinsella, global head of FX strategy at Union Bancaire Privee UBP SA in London.

The government’s steps should be enough to “stabilize” the currency before the announcement of the medium-term fiscal plan at the end of the month, he added.

Fears that the bond markets will take fright again has prompted Jeremy Hunt to take “fresh damage limitation measures”, comments Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

She expects a roll-back of planned tax cuts, as the chancellor tries to calm financial markets.

It looks highly likely that the 1p cut in the base rate of income tax set to be postponed, we could see changes to the new VAT-free shopping scheme for tourists, and possibly a reversal of plans to relax the way tax is collected from self-employed people. We could even see a rise in VAT.

But filling the black holes in the government’s finances will be far from easy so highly unpalatable spending cuts across government departments are also expected. Jeremy Hunt had already been setting the scene for this bonfire of tax cuts over the weekend.

Streeter adds that Hunt’s pledges of fiscal responsibility, andspeculation that Liz Truss’ days are numbered, both lifted the pound back towards $1.13 this morning.

Since the emergency budget statement was announced, it’s gained further ground. But sterling is still weaker than before Kwasi Kwarteng was ruthlessly axed, with the chief architect of the disastrous mini-budget still, for now, in place.

Steven Swinford of The Times reports that Liz Truss and Jeremy Hunt have agreed to defer the 1p cut in the basic rate of income tax until 2024.

Former chancellor Kwasi Kwarteng had announced in the mini-budget that the basic rate of income tax would be cut from 20% to 19% from April 2023, a year early, to help with the cost of living crisis.

Here’s the full statement from the Treasury:

The Chancellor will make a statement later today, bringing forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability.

He will also make a statement in the House of Commons this afternoon.

This follows the Prime Minister’s statement on Friday, and further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth.

The Chancellor will then deliver the full Medium-Term Fiscal Plan to be published alongside a forecast from the independent Office for Budget Responsibility on 31 October.

The Chancellor met with the Governor of the Bank of England and the Head of the Debt Management Office last night to brief them on these plans.

The pound has strengthened this morning, as investors react to the news that Jeremy Hunt is fast-tracking some tax and spending plans to today.

Sterling has gained over a cent to $1.128 against the US dollar, recovering much of Friday’s losses.

The financial markets are mainly focused on the pound today, explains Naeem Aslam, chief market analyst at Avatrade:

Prime Minister Liz Truss has appointed a new Chancellor of the Exchequer in place, and one could say at this stage that the mini-budget has only done harm to the British economy and its currency, as most of the policies that were announced will be reversed.

It appears that the UK will have to adopt strict austerity measures now in order to bring its economy back on track. But the timing of introducing austerity is not the best as the government will have to use austerity when the public is already struggling with higher interest rates which are going to only increase in the coming months and quarters.

Increasing taxes, which is what the new Chancellor is hinting, will only increase the pressure on the British public as many are struggling to meet their daily needs already.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

The financial markets will give their verdict on Liz Truss’s government today as the PM clings onto power in the face of growing pressure to quit.

And in an attempt to reassure investors about Britain’s financial stability, new chancellor Jeremy Hunt is to announce some tax and spending plans today – the latest in a series of u-turns from the government.

In a surprise move, the Treasury has announced that the Chancellor will make a statement later today, which will “bring forward measures from the Medium-Term Fiscal Plan that will support fiscal sustainability”.

Hunt will also give a statement to parliament on the plan.

By announcing these tax and spending measures a fortnight earlier than expected, Hunt is trying to reassure jittery markets and turn around a loss of confidence in the government’s fiscal plans.

Over the weekend, Hunt unceremoniously chucked Truss and Kwarteng’s disastrous mini-budget under the bus.

Instead of unfunded tax cuts to spur growth, Hunt warned that some taxes will rise and spending will be squeezed in an attempt to persuade international investors Britain is a reliable, responsible country.

Not the easiest task, given the hammering which recent events have dealt to confidence.

With the plan to cut corporation tax already scrapped, Hunt could delay plans to cut a penny off income tax by a year, or demand even more ‘efficiency savings’ from government departments, despite there being little to trim in, say, health or education.

The medium-term fiscal plan, to show how the UK plans to balance the books, is scheduled for 31 October, when we’ll also get the Office for Budget Responsibility’s forecasts.

While the chancellor tries to calm nerves, the government bond market no longer has the safety net provided by the Bank of England. Its emergency pledge to buy up long-dated gilts ended on Friday afternoon, as planned, after giving pension funds the opportunity to extricate themselves from the ‘doom loop’ of falling bond prices after the mini-budget.

UK gilts will resume trading at 8am this morning, when the London stock market also opens. If borrowing costs push higher, it could intensify calls for more change in Downing Street, or even spur the BoE into fresh action.

Analysts have warned that we could face another week of turbulent markets.

UK assets have been badly hit by the British government’s loss of credibility, as we saw on Friday afternoon.

Bond prices had been recovering on Friday morning, but lurched lower after Truss’s unimpressive press conference – announcing the exit of Kwasi Kwarteng – didn’t offer much reassurance of how the UK’s fiscal black hole – thought to exceed ?70bn – will be filled.

And in Westminster, the beleaguered prime minister will attempt to shore up her crumbling support by gathering her cabinet ministers at No 10 tonight.

But some MPs went public yesterday calling Truss to quit, including backbencher Jamie Wallis — who has confirmed to the Guardian that he had submitted a no confidence letter — and veteran Tory MP Crispin Blunt.

The agenda

8am BST: China publishes FDI (foreign direct investment) figures for September

9am BST: Italian inflation rate for September

11am BST: Jeremy Hunt expected to announce tax and spending plans

11am BST: German Bundesbank’s monthly report

1.30pm BST: Empire State manufacturing survey of New York factories