Chancellor Kwasi Kwarteng has written to the Treasury select committee this morning, announcing that the date of his medium-term fiscal plan is moving forward by almost a month: from 23 November to 31 October. Mel Stride, the committee’s chair, tweeted the letter in full, adding that he ‘strongly welcome[s]’ the move (which, he says, he had ‘pressed so hard on’) in the hope that an earlier update will help mitigate rising borrowing costs.
It’s a rather unsurprising announcement from the Chancellor. Despite doubling down on his original November date at the Conservative party conference, no one realistically thought that timeline would last. While the pound has jumped back to its pre-mini-Budget levels, gilt yields remain above 4 per cent while the market expectation remains that the Bank of England’s Monetary Policy Committee will vote for a staggering 1.25 per cent interest rate hike at its next meeting.
The hope, as expressed by Stride and others, is that the sooner we get an update from Kwarteng about his plans to get debt falling as a percentage of GDP – and an update from the Office for Budget Responsibility showing whether those plans have merit – the sooner markets will settle back down and the UK will stop looking like an outlier among western countries (almost all of which are dealing with rising borrowing costs).
But the crunch point may still come early. On Friday, the Bank of England ends its emergency £65 billion gilt purchasing programme which was temporarily brought in the week after the mini-Budget in a bid to stabilise the markets. (In the meantime, the Bank is actually boosting the programme by doubling its purchasing limit of long-term gilts from £5 billion per day to £10 billion.) While the Bank this morning announced it would essentially extend the scheme past the end of the week for banks – to offer more liquidity, if needed, to help protect pension funds – Friday still has the potential to trigger more instability if the markets are not reassured by the promise of more announcements two weeks later.
The Treasury will be relying not just on Kwarteng’s upcoming statement, but on the U-turns and change in tone over the past week to keep the markets reasonably stable. Kwarteng has used almost every public speaking opportunity since the mini-Budget to make his commitment to fiscal discipline clear – emphasising the government’s respect for institutions such as the Bank and the OBR. The two-week gap between the Bank’s rollback of its gilt-buying programme and his announcements, the Chancellor said in his letter this morning, are to ensure the OBR can fully calculate the data around the government’s growth agenda and to finalise his announcements – which have required him to consider spending cuts and state efficiencies much earlier than he was planning to.
Despite all the reassuring words, there’s no doubt that there needs to be a more concrete announcement. The lingering question is whether the markets are willing to wait a few more weeks to find out what exactly those announcements will be.
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