Kate Andrews Kate Andrews

What crisis? A tough week for Trussonomics

What’s the sign of a successful Budget? Chris Philp, the new chief secretary to the Treasury, gave his answer moments after Chancellor Kwasi Kwarteng’s statement last Friday: a strong pound.

‘Great to see sterling strengthening on the back of the new UK growth plan,’ he tweeted out. A (temporary) rising pound made sense to Truss supporters, who argued that markets would support their transition to a lower-tax, higher-growth economy. This was, they thought, their vindicating moment.

The moment didn’t last. Within minutes, the pound had entered a steep descent and UK borrowing costs surged. But Kwarteng is not a politician who panics. Instead of staying in the office and trying to understand what had happened, he went to celebrate with Treasury staffers in the local pub, a traditional way to mark the freeze in alcohol duty. Let’s see where markets are in four weeks’ time, he told friends: half a day’s worth of data is a blip, not a trend. Over the weekend he doubled down, promising more tax cuts to come. In response, the market doubled down too.

By Monday, the pound hit $1.03, an all-time low, and pressure was growing on the Bank of England to announce an emergency interest-rate hike. Hundreds of mortgage deals started getting pulled from the market in anticipation – sparking fears of a property price crash. The ‘blip’ started to look serious. The Treasury finally moved to calm the markets, promising updates on its ‘medium-term fiscal plan’ next month. Even this was going further than the Prime Minister wanted, but she was ultimately convinced by Kwarteng – who now plans to calm the market with several weeks of silence.

But the Bank was not prepared to wait. Having said last week that it would push forward with its plans to sell government debt, it performed an emergency U-turn on Wednesday morning, announcing it would start buying government debt again on ‘whatever scale is necessary’ once evidence emerged that spikes in borrowing costs were putting traditional pension funds at risk.

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