The mini-economic crisis ushered in by the mini-budget continued into last week and culminating in Jeremy Hunt replacing Kwasi Kwarteng as Chancellor in what had been a very rocky 38 days in the role.
The question now is whether the Liz Truss premiership will survive.
As part of the shakeup, the cancelled rise in corporation tax from 19 to 26% has now been uncancelled.
The Government, in a bid to settle markets, will now receive an assessment of the UK’s fiscal position on the 31st October. It is thought likely that other tax cuts will be cancelled or delayed with the cut in basic rate tax seen as the next in line for a delay. But in terms of the numbers, the Institute for Fiscal Studies got there first.
It has suggested cuts or tax rises of £62bn would be by 2026/27 necessary to square the fiscal circle and get debt falling in the medium term.
The UK also came under fire from IMF managing director Kristalina Georgieva who said: “Our message to everybody, not just to the UK, at this time is fiscal policy should not undermine monetary policy because, if it does, the task of monetary policy only becomes harder and it translates into the necessity of even further increases of rates and tightening of financial conditions. So don’t prolong the pain.”
Meanwhile global investment bank JP Morgan has said the UK gilt market may be permanently scarred or in other words, the UK’s cost of borrowing may now be higher whatever action is taken.
Last week saw the end of Bank of England support for gilts designed to allow DB pension schemes to manage their positions and meet margin calls regarding liability driven investments though especially the leveraged version, which is now the subject of huge criticism from both within and without the pensions world.
There had been something of a stand-off earlier last week, as the Bank of England Governor Andrew Bailey speaking in Washington at the Institute of International Finance had insisted to pension funds and fund managers “You’ve got three days left now. You’ve got to get this done.”
This was essentially rejecting a plea from the Pensions and Lifetime Savings Association to extend support till October 31st.
A letter from the Pensions Regulator published by the Work and Pensions select committee included assurances to the MPs that no scheme had got closer to falling on the PPF despite the crisis.
Time will tell if government actions have been enough to satisfy gilt markets and indeed whether the mini-pensions crisis is definitely over.
In Mortgage Strategy Coreco managing director Andrew Montlake gives his view of the impact on the mortgage markets.
He makes an interesting point about lenders withdrawing rates out of hours and at weekends, but not having staff there to discuss changes leaving brokers working extra hours but not able to get answers.
Institute for Financial Wellbeing founder and chair Chris Budd has stepped down with Ruth Starkey taking over.
