Moments before Kwasi Kwarteng rose to speak in the House of Commons today (11 October), the International Monetary Fund said the UK would have the highest inflation in the G7, fuelled by the Chancellor’s £43bn of unfunded tax cuts last month.
It was only the latest negative reaction of the Chancellor’s “mini”-Budget. Eighteen days have passed since Kwarteng stood up in the Commons and stunned both sides of the House with his audacious statement, causing turmoil in the financial markets, a revolt among voters – Labour opened close to a 30-point poll lead over the Conservatives – and rebellion among his own MPs.
It was the latter consequence that dominated Kwarteng’s appearance at Treasury Questions in the Commons this afternoon. The Chancellor received a hostile reception from both sides of the chamber. Mel Stride, the Conservative chair of the Treasury Select Committee, warned Kwarteng to speak to MPs from both of the main parties before he announces his fiscal plan on 31 October to ensure his measures can pass. “Any failure to do so will unsettle the markets,” he warned.
Stride was right to note the impact of parliamentary rebellion on the confidence of the markets. Another chaotic announcement and further U-turns will only entrench the perception that the government hasn’t got a grip on the economy.
But the reverse is true as well. The Bank of England’s intervention in the government bonds market is due to end on Friday (14 October). Gilt yields – which the Bank sought to depress – are approaching the level that triggered its original intervention. The question is what will happen when the Bank’s support is withdrawn. If market volatility persists, it’s increasingly likely that opposition among Conservative MPs to the mini-Budget will become irreversible. At that point, further measures will have to be abandoned by the government. Which in turn puts a question mark over the Chancellor’s position.