Sterling fell sharply against the dollar overnight after the governor of the Bank of England, Andrew Bailey, confirmed the bank would not extend its government bond-buying scheme beyond Friday.
The pound fell by more than a cent against the dollar after the governor confirmed the end of the £65bn plan to mop up the market fallout triggered by the Chancellor’s disastrous mini-Budget.
The announcement came after the International Monetary Fund weighed in for a second time, urging the Prime Minister to U-turn on her unfunded tax cuts and warning that the Bank and the Treasury were “like two people trying to steer a car in different directions”.
And the dire news on the economy just keeps coming. The Office for National Statistics revealed this morning that GDP fell 0.3 per cent in August, which the former Bank of England deputy governor Charlie Bean told Radio 4 “confirms the general picture that the UK economy is flat-lining, to marginally contracting”.
During the fallout from the 2008 crash, David Cameron’s Conservatives pointed to the sovereign debt crisis in Greece as they made the case for austerity. “The people of Greece know what happens when the world loses confidence in your ability to pay your bills,” George Osborne wrote in the Telegraph in 2009.
Amid widespread criticism of Kwarteng’s lack of transparency, the weakest post-Covid recovery in the G7, soaring mortgage rates and a 14 per cent fall in exports to the EU last year, few Tories can gloat about post-Brexit Britain.
The shadow chancellor, Rachel Reeves, who accused the government of turning the UK into an “international laughing stock” over its handling of the economy, is leading calls for Truss to reverse the budget in full.
Kwarteng, who was greeted with calls of “resign” when he turned up at Treasury questions yesterday, has already U-turned in the hope of calming the markets by bringing forward the Office for Budget Responsibility forecast to 31 October.
Truss faces Keir Starmer in the Commons for her second PMQs at noon. Now effectively a hostage of her backbench MPs, who are pushing back hard on plans for welfare and spending cuts to pay for Kwarteng’s tax plan, she may cut a lonely figure at the despatch box.
How will the PM escape this growing catastrophe? Further climb-downs seem inevitable. The former minister Stephen Hammond became the first Conservative to break ranks and call for the government to keep the planned rise in corporation tax (under Johnson, the levy was due to rise from 19 per cent to 25 per cent in April). The UK’s rate is significantly lower than other G7 countries, such as Italy (27.8 per cent), Japan (29.7 per cent) and Germany (29.8 per cent).
Truss insisted at the Conservative Party conference in Birmingham that she and the Chancellor are “in lockstep” over their growth plan, but many of her colleagues believe that for the PM to survive Kwarteng must go.
Labour sources say the party is factoring in the likelihood of Truss being ousted as strategists plan how to fight the next election.
Rishi Sunak, who was beaten to the leadership by Truss, has been keeping a low profile but made a rare public appearance at a Bloomberg News event in London last night. All eyes will be on the government backbenches when PMQs gets underway to see if the former Chancellor – whose predictions about Truss’s administration are being proved right day by day – could be plotting to replace her.