Kwasi Kwarteng: Liz Truss fires finance minister as pressure builds for tax cut climbdown


London
CNN business

British Prime Minister Liz Truss has sacked her finance minister, Kwasi Kwarteng, amid widespread speculation that she is preparing to abandon much of her discredited economic strategy.

In a letter posted on TwitterKwarteng said he agreed to step aside Truss’ request, adding he believes her vision of “optimism, growth and change” is the right one and pledged support.

A senior Downing Street source previously told CNN that Kwarteng was sacked after realizing speculation about his future had become a distraction that was not in the interest of the country. Truss will hold a press conference later.

Just three weeks ago, Kwarteng unveiled a “mini-budget” promising huge tax cuts and increased borrowing in hopes of boosting Britain’s economic growth. But sterling and government bonds tumbled on fears the plans would further fuel inflation at a time when prices are already rising at their fastest rate in about 40 years.

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This prompted the Bank of England to warn of a serious risk to UK financial stability and to announce three separate interventions to calm a meltdown in the bond market that has pushed some UK pension funds to the brink of default.

The unfunded tax cuts have drawn criticism from investors, the International Monetary Fund, rating agencies and members of Truss’s own party, some of whom are reportedly now talking about sacking her as prime minister after just five weeks.

Kwarteng flew back overnight from the IMF meeting in Washington DC to speak with Truss. His sacking on Friday means he held the post of Britain’s Chancellor of the Exchequer for just 38 days, the second-shortest tenure on record.

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Markets welcomed signs of government rethinking. As bond prices rose, the 30-year UK government bond yield fell back to 4.3% after peaking at more than 5% in the past few days, while the pound was last seen trading at $1.12. It had fallen to a record low near $1.03 on Sept. 26.

Bryn Jones, head of fixed income at Rathbones, said his team bought some longer-dated UK government bonds – known as gilts – earlier this week when they looked cheap – a bet that is now paying off.

“The gilt market is doing well but we’ll see what happens today and next week. Things can change quickly,” the investment manager said. “The volatility suggests that there is not much confidence here.”

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A 65 billion pound ($73.3 billion) bond-buying program launched by the Bank of England on September 28 expires on Friday The government is not quick to explain how it intends to pay for the tax cuts.

Kwarteng had already brought forward its full budget statement to October 31, more than three weeks ahead of schedule. But investors may not be ready to wait that long for confirmation on the state of Britain’s public finances.

The UK government has already abandoned plans to cut the top rate of tax, and media reports suggest it may also reconsider plans to cancel a corporate tax hike.

— Richard Quest, Zahid Mahmood, and Xiaofei Xu contributed to this article



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