UK Policymakers Try to Calm Panicked Markets

UK authorities are trying to soothe financial markets after plans by new Prime Minister Liz Truss to cut taxes while increasing borrowing caused alarm among investors concerned it could fuel inflation further and upend government finances.

The Bank of England (BOE) diplomatically said on Monday that it was “monitoring developments in financial markets very closely in light of the significant repricing of financial assets.”

In layman’s terms, the BOE took note of the pound’s hammering against the dollar earlier in the day. The BOE went on to say it would analyze the effects of Prime Minister Truss’s plan at the next scheduled meeting in November.

The pound has plummeted, and government bonds have collapsed since the much-maligned financial plan came to light last week. Intended to ignite economic growth, the plan has instead caused panic among investors who think it will not work.

The Truss government’s plan is seeking to boost demand to take the edge off a recession this winter, while the BOE is trying to cool the economy through interest rate hikes.

Investors are spooked about tens of billions of dollars in new borrowing, driving the pound to a record low against the US dollar this week and triggering an alarming sell-off in UK government bonds, which could only make the BOE’s inflation challenge more difficult to control.