The pound has edged higher against the dollar in anticipation of a key statement from the new chancellor tasked with sorting out the fallout from the government’s mini-budget.
Sterling had fallen to a record low against the dollar at the end of September, after the short-lived then chancellor Kwasi Kwarteng unveiled the biggest programme of tax cuts for 50 years.
Mr Kwarteng, who was sacked on Friday after just 38 days in the job, paid the price for a mini-budget that called into question the government’s economic credibility on financial markets.
The mini-budget led not just to a collapse in the value of the pound but also prompted a surge in borrowing costs – forcing an unprecedented intervention by the Bank of England (BoE).
Out the door went Kwasi Kwarteng
However, following the prime minister’s announcement on Friday that Mr Kwarteng had been sacked and that corporation tax would rise to 25% from April next year instead of being kept at 19%, there was a partial recovery for the UK currency and bond yields.
Mr Kwarteng’s replacement, former foreign and health secretary Jeremy Hunt, has since promised to win back the confidence of the financial markets by fully accounting for the government’s tax and spending plans.
Sterling gained 0.8% to hit $1.1261 on Monday in trade in Asia when the Treasury revealed that Mr Hunt would deliver key parts of a medium-term fiscal plan later on Monday in support of “fiscal sustainability”.
In came the new Chancellor of the Exchequer Jeremy Hunt
The statement added that Mr Hunt met the BoE governor and the head of the Debt Management Office on Sunday night to brief them on the plans – measures brought forward from the Medium-Term Fiscal Plan that is due to be revealed on 31 October.
The early measures would first be revealed in a statement on Monday morning before being outlined to MPs, the Treasury said.
All eyes are now on how the UK government bond market will trade, after the BoE on Friday concluded its emergency gilt market support.
Any rises in government borrowing costs, through a gilt yield rise, would reflect continuing jitters.
More likely, however, is a downwards shift given that Mr Hunt appears to be acting swiftly to address the concerns of investors.
Can Truss remain PM?
The Conservative Party is now on its fifth chancellor in the past three years – Mr Hunt, Mr Kwarteng, Nadhim Zahawi, Rishi Sunak and Sajid Javid.
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Pound sinks to record low against the dollar – as PM and chancellor defend mini-budget
Bank of England ‘will not hesitate to change interest rates as necessary’ after pound’s fall
Mr Hunt is the seventh Tory chancellor in 12 years.
There is now a renewed focus on whether Ms Truss can remain in the job.
A Tory MP told Sky News: “The idea that the prime minister can just scapegoat her chancellor and move on is deluded.
“This is her vision. She signed off on every detail and she defended it.”