UK’s financial turmoil continues as the pound slumps more than one per cent against the dollar

The pound fell more than one percent against the dollar to as low as $1.0763 in early morning trading today — as Liz Truss insisted the mini-budget was the “right thing” to do despite the financial turmoil.

Sterling fell Thursday with 10am figures showing the pound at $1.0795, compared to $1.0830 at the previous close.

The FTSE-100 fell nearly 2% before recovering to -1.17%, with the index dropping 107.53 to 6897.86 at 9:45 am.

The 10-year government bond yield fell 50 basis points to 4.01%, and the two-year yield fell a similar amount to 4.24%. This came after the Bank of England (BoE) intervened in bond markets to avert another financial catastrophe.

The BoE pledged to buy as many long-term government bonds, or gilts, as possible to calm markets, which were plagued by concerns that last week’s budget was pushing up debt.

The BoE’s move “has certainly heightened concerns about the potential negative impact on economic and financial markets from the loss of confidence in UK public finances,” said MUFG analyst Lee Hardman.

Prime Minister Liz Truss broke her silence after nearly a week of chaos in the financial markets, defending her economic plan by saying she was willing to take “controversial” steps to relaunch growth.

“This is the right plan we’ve laid out,” she said in a series of interviews with local BBC radio stations on Thursday morning.

Asked if she would roll back the mini-budget that shocked markets with the magnitude of the tax cuts and government loans, Ms. Truss said, “I don’t accept the premise of the question.”

She added: “We are facing difficult economic times. I’m not denying this. This is a worldwide problem. But what is absolutely correct is that the British government has intervened and acted in this difficult time.”

The Prime Minister said today that the government had to take immediate action to fuel economic growth in defense of its tax-cutting budget as gilt yields began to rise again.

She told BBC local radio that the plan was designed to put Britain on a better path in the long term and she was prepared to make tough decisions to help households and businesses through what was expected to be a very rough winter.

She said the government is working closely with the Bank of England.

When asked during an interview whether it was time to roll back the mini-budget, Ms Truss said: ‘No, it’s not because… the bulk of the package we announced Friday was support for energy for individuals and businesses. think that was absolutely the right thing to do.”

“I have to do what I think is right for the country,” she said, adding that she is willing to make tough decisions.

The hefty budget tax cuts and energy price freezes aimed at boosting the UK’s recession-threatened economy had pushed bond yields soaring and the pound plunged to a record low of $1,0350 on Monday as traders feared. that it would derail public finances.

The BoE move came after the International Monetary Fund criticized the recent budget announcement, arguing that it could widen inequality and exacerbate inflation.

Finance Minister Kwasi Kwarteng caused turmoil in financial markets last week when he presented a plan to cut taxes without commenting on the impact on public finances or how the government would reform the economy to boost growth.

The pound fell and government bond yields skyrocketed, prompting the BoE to revive its bond-buying program in an emergency on Wednesday to support pension funds.

Ms Truss said the government must act urgently and decisively to protect households and businesses from rising energy bills.

“Of course that means making controversial and difficult decisions. But I am prepared to do that as prime minister, because what I think is important is that we get our economy moving.’

Faced with questions about the fairness of the ‘Robin Hood’ budget, she said: “It’s not fair to have a recession… it’s not fair to have fewer jobs in the future because we have the highest tax burden.” .’

Prior to her appearances, allies insisted she had no intention of deviating from Kwasi Kwarteng’s economic plan outlined in Friday’s mini-Budget.

His announcement that he was scrapping the top 45p income tax rate and cutting other levies such as corporate tax and national insurance, while raising UK loans, has sparked calls to stop or be replaced.

But Mrs. Truss would have ruled out firing him less than a month before his appointment, or making any concessions to the financial collapse.

Investors, businesses and consumers are now waiting for the government to announce more details about how it plans to accelerate the economy, which will be critical to solving the country’s increasingly strained public finances.

“Every day, every week, every month, the government is now being criticized by markets and companies for how serious they are about growth and about their fiscal responsibility to repay debt,” Tony Danker, director-general of the Confederation of British Industry, said.

Former BoE governor Mark Carney criticized the plan to cut taxes, saying it undermined the BoE’s efforts to curb inflation and caused chaos in financial markets.

“Unfortunately, having a partial budget in these circumstances – a difficult global economy, a difficult position in the financial market, working with the bank – has led to some pretty dramatic movements in the financial markets, as we have all seen,” Carney told the BBC.

Chief Secretary to the Treasury Chris Philp said the government will stick to its plan to make a more complete budget announcement on Nov. 23, when it will provide more details on how it will reduce debt.

But some financial analysts said the government may need to bring that announcement forward to calm investors’ nerves.

Jonas Goltermann, senior market economist at the consultancy Capital Economics, said: “I don’t think[the BoE’s intervention]will be a long-term boost for sterling, although it could prevent an extreme downturn. He added that he believes further declines in the pound are likely.