Rishi Sunak, New UK Prime Minister, Delays Economic Plan

Prime Minister Rishi Sunak, who has taken on the unenviable task of restoring Britain’s credibility in international markets, said on Wednesday he would delay the announcement of a major economic plan by two and a half weeks as he sought more time to make the right decision. decisions.”

Jeremy Hunt, the Treasury secretary, will deliver the financial statement on November 17, instead of on Monday. The statement is set to set spending and tax policies in line with reducing Britain’s debt burden. It will be accompanied by forecasts from the Office of Budget Responsibility, an independent government watchdog that will assess the impact of government policies on the economy and public finances.

“It is important to reach the right decisions and there is time to confirm those decisions with the cabinet,” Mr. Sunak told his cabinet ministers, according to a reading of his first meeting with ministers on Wednesday morning.

The October 31 was a legacy From Liz Truss’s short and turbulent tenure as prime minister. The policy statement was set as part of an effort to restore calm to the financial markets afterwards Mrs. Truss plans to cut taxes On September 23 provoke disturbanceswhich led to a fall in the pound, higher government bond yields and Central bank intervention.

Investors cheered for Mr. Sunak’s swift promotion to the position of Prime Minister and Repeal most of Ms. Truss’s policiesMarkets were unfazed by the delay in announcing the policy. The pound is trading above $1.15, recovering its losses since the September fiscal plan, and bond yields have fallen dramatically, lowering government borrowing costs.

Mr. Sunak’s previous experience guiding Britain’s public finances as an advisor during the pandemic, and subtle warnings He has presented over the summer about the perils of Mrs. Truss’s policies, and it seems to have earned him some flexibility. He also offered a clear break from Mrs. Truss and was quick to show respect for institutions such as the Office of Budget Responsibility and the Bank of England.

However, the financial statement poses challenges to Mr. Sunak’s fledgling government.

Mr. Sunak, along with Mr. Hunt at the Treasury, will need to strike a balance between meeting market demand for strict fiscal discipline without doing economic damage. The British economy Already experiencing a slowdown, with some indications of stagnation, such as high inflation It stifles consumer spending.

Mr Hunt said there would be “very difficult” decisions and asked every government department to find ways to save money. Economists have warned that there is little room for already stretched administrations to make cuts, especially when there are so many high demands on public spending.

The government is already planning to spend tens of billions of pounds to protect homes and businesses from rising energy costs. Inflation erodes the value of past spending commitments, which the government is under pressure to increase. Public sector workers are demanding higher wages, with many sectors contemplating a strike. The NHS is overburdened and struggling to reduce the backlog of cases. And the Schools warn of dwindling financial reserves.

Tony Dunker, President of the Confederation of British Industry. Tuesday warned of the danger of a ‘death loop’ In the British economy, it is reminiscent of the era of austerity that followed the 2008 financial crisis, when government spending cuts slashed productivity and economic growth.

“If there are tax increases and spending cuts, and there is nothing about growth, the country could end up in a similar cycle of agony where all you have to do is keep coming back every year to find more tax increases and more spending cuts because you have no growth “. Mr Dunker told the BBC.

One consequence of delaying the fiscal plan is that it will now come after the Bank of England’s next policy meeting, scheduled for November 3.

The earlier date would have allowed central bank officials to assess government policies and then determine how high interest rates should be to curb inflation. This was important when there was concern that Mrs. Truss’ tax cuts would lead to this In addition to inflationary pressures in Britainpulling fiscal policy in the opposite direction of monetary policy, and Forcing the central bank to raise interest rates sharply.

But analysts expect Mr. Sunak to take a more cautious approach to fiscal policy, and traders have lowered their expectations on how much higher interest rates are needed.

“Renewed coordination between monetary and fiscal policy should ultimately help reduce inflationary pressures,” Paul Hollingsworth, economist at BNP Paribas, wrote in a note. Analysts at the French bank expect interest rates to peak at 4.5 percent early next year, down from a recent forecast of 5 percent. The central bank set interest rates at 2.25 percent.

But there is a caveat: the “simultaneous” tightening of fiscal and monetary policy “threatens a prolonged period of economic stagnation,” Mr. Hollingsworth added.