Sterling crisis: markets brace for more volatility with Kwarteng to meet bank bosses – business live | Business

The key, dangerous, charge against Liz Truss and Kwasi Kwarteng is that they lack the competence to get their “new era” for the UK economy off the launchpad, our financial editor Nils Pratley explains:

Nils warns that a lot of financial credibility has been shredded in just two trading days, writing:

Do they understand that, when you’re running a large current account deficit and need to borrow the thick end of £200bn next year, financial markets matter?

The prime minister and chancellor might have expected a bumpy reception, but what they got was an open revolt in markets and some extraordinary comments from grown-up economists at serious firms. “Hope is not a strategy,” said Nomura’s team, predicting parity for the pound against the dollar by year end. “Investors seem inclined to regard the UK Conservative party as a doomsday cult,” said Paul Donovan at UBS Global Wealth Management.

While Monday morning’s record low against the dollar grabbed the headlines, sterling has also fallen about 8% on a trade-weighted basis in two months. That is a chunky move, but one dwarfed by what’s happened with gilts. It cost the government 1.9% to borrow for 10 years in early August; that rate was 3.1% a week ago and is now 4.1% as the market tries to work out how far the Bank of England will have to raise interest rates.

Virtually nobody accepts the notion that the biggest tax cuts since 1972 can be anything other than inflationary.

Here’s the full piece:

Consumers are going to suffer from sterling’s tumble.

A weak pound pushes up the cost of imported food, petrol, cars and consumer goods – which firms will pass on to consumers

It will also drive up the cost of mortgages (as the Bank of England is expected to hike interest rates to prop up sterling), and make foreign holidays pricier.

Here’s a full explanation:

Giving tax cuts to the rich is not a vote winner.

A YouGov survey for The Times has found that Labour has taken its biggest opinion lead over the Tories since the firm began polling in 2001.

Labour are 17 percentage points ahead of the Conservatives, with 45% support, vs 28% for Liz Truss’s party.

The survey revealed widespread public opposition, including among Tory supporters, to the tax-cutting measures announced by the chancellor last week.

Kwarteng’s decision to scrap the 45% rate of tax for those earning more than £150,000 was opposed by 72% of voters, including 69% who backed the Conservatives in 2019.

Just 19 per cent of voters thought Kwarteng’s budget was “fair” — the worst polling figure since YouGov began to ask the question in 2010.

Here’s the full story.

Kwasi Kwarteng faces a fraught meeting of City bosses today at the Treasury, following the horrific market reaction to his tax-cutting mini-budget.

Kwarteng and new City minister Andrew Griffith are due to welcome senior leaders from banks, insurance companies and asset managers today, Bloomberg reports.

The aim of the meeting was originally to come up with some bold ideas for the government’s so-called “Big Bang 2” plans to re-energise the City.

But the slump in the pound, and the brutal selloff in gilts, mean it will be more of a crisis summit than a convivial conversation. Kwarteng will not be able to get away with dismissing the sterling crisis as mere market gyrations.

Bloomberg explains:

Bankers were meant to be wowed by measures such as the end of a cap on their bonuses and the scrapping of the 45% top tax rate, and the early reaction from industry bodies was positive on Friday.

But Monday’s markets meltdown, which sent the UK’s borrowing costs soaring, killed off those good vibes.

Kwarteng will need to demonstrate that he understands the seriousness of the dramatic drop in the pound and gilts rather than characterizing them as short-term fluctuations, several financiers said. Attendees will want answers on how he can restore investor confidence.

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

Investors are bracing for another day of sterling volatility, as the crisis created by the government’s reckless mini-budget continues to grip the markets.

The pound is slightly higher in early trading, clinging onto the $1.08 mark, after hitting an alltime low around $1.035 yesterday morning. It’s still down 7% this month.

And the pound still looks extremely vulnerable, as the Treasury and the Bank of England struggle to prevent a full-scale loss of financial market confidence.

UK government bonds are on track for their worst month on record, going back to the 1950s, as international faith in Britain is hammered by Kwasi Kwarteng’s binge of borrowing to fund tax cuts, mainly benefiting the wealthy.

The selloff has pushed the cost of borrowing for 10 years up to 4.1%, from 3.1% before the mini-budget.

Jim Reid, strategist at Deutsche Bank, says:

UK assets have remained at the eye of the storm as the negative reaction to the government’s mini-budget on Friday continued.

The country’s government bonds were completely routed for a second day.

The staggering slump in gilt prices in recent days has forced several mortgage providers, including Virgin Money and Skipton Building Society, to pull deals, with economists predicting that interest rates could rise to 6% by next summer.

That would leave many households facing massive increases in mortgage repayments, which will be impossible for some to meet.

Yesterday, the Bank of England resisted pressure to implement an immediate emergency rise in interest rates, which put fresh selling of the pound.

The pound’s calamitous slide to record lows has gripped global markets too, and even increased the risk of a global recession.

And Labour leader Sir Keir Starmer is expected to depict Labour as the party of “sound money” and fiscal responsibility at his keynote speech to the Labour conference in Liverpool.

The agenda

• 12.30pm BST: ECB president Christine Lagarde speaks on a panel on financial stability challenges related to digitalisation of financial services

• 1.30pm BST US durable goods orders for August