U.K. bond yields continued to drop on Friday, on expectations the U.K. government will further backtrack on its tax cut plans, as Chancellor of the Exchequer Kwasi Kwarteng flew back early from the International Monetary Fund meeting and a press conference was called for U.K. Prime Minister Liz Truss.
The yield on the 30 year gilt
TMBMKGB-30Y,
— which was high as 5.1% as recently as Wednesday — fell 28 basis points to 4.27%.
The yield on the 10-year gilt
TMBMKGB-10Y,
dropped 25 basis points to 3.95%. Yields move in the opposite direction to prices.
The pound
GBPUSD,
fetched $1.1273, down from $1.1331 on Thursday.
Kwarteng in recent interviews has done nothing to douse speculation the U.K. government will further pare its tax-cut plans. In one interview, he replied to a question about further U-turns by saying he was comitted to pushing through the government’s growth agenda. In another, he replied, “we’ll see.”
Speculation of further U-turns has centered around corporate tax cuts in particular. Other tax cuts that could be reversed include the planned personal income-tax reduction to 19% from 20%.
There’s some speculation around whether Kwarteng will even remain in his post.
The government has already relented on a planned cut for those making above £150,000. Financial markets gyrated after Kwarteng announced its mini-budget, which called for some £45 billion in tax cuts on top of capping energy prices. Investec Securities estimates the total cost of the stimulus to be on the order of £150 billion.
A medium-term fiscal plan, as well as an independent forecast from the Office of Budget Responsibliitiy, is due at the end of October.
The Bank of England’s emergency bond-buying plan — designed to ease tensions for pension funds — is due to expire on Friday.
The central bank says it’s purchased £17.8 billion in securities.
