‘Opposite directions’: Economist warns the Government and BofE are at war over the economy

As the Government plans to introduce a string of tax cuts in the Chancellor’s freshly unveiled mini budget, the Bank of England has again increased interest rates in the UK. Lord Burns warned the two fiscal departments appear to be taking drastically different approaches to resolve the economic crisis as the nation teeters on the brink of recession. The former Chief Economic Advisor described the development of the financial situation as “quite concerning”.

In conversation with LBC host Nick Ferrari, Lord Burns said: “It is really quite worrying that two arms of government economic policy are pulling in opposite directions.”

He elaborated: “We have the Bank of England who are putting up interest rates to try to damp down the economy a bit and to damp down inflationary pressure.

“On the other hand we’ve got the government who are proposing to have large fiscal expansion and do a great deal more borrowing, which will be playing the other way.”

Chancellor Kwasi Kwarteng has outlined plans to slash taxes and introduce a freeze on energy bills as part of a huge fiscal package that will be funded by increases to Government borrowing.

Lord Burns continued: “During the time I was in the Treasury in the 1980s and 90s a lot of effort was put in to try to make sure that fiscal and monetary policy were pulling in the same direction.

“Yet, we now find ourselves in a position where they’re really pulling in opposite directions and that’s quite concerning.”

The economist claimed the variance in approach to finances presented an “unusual” situation as the Government and Bank of England would usually aim to be aligned in their policy.

The Chancellor asserted the Government and the Bank of England remained “closely coordinated” on fiscal policy.

Kwasi Kwarteng told the House of Commons he and the Governor of the Bank of England will continue to speak at least twice a week as the Tories implement their plan for economic growth.

On Thursday, the Bank of England raised UK interest rates to 2.25 percent, marking a 14 year high and the seventh rate increase in a row.

Inflation is expected to reach close to 11 percent by October, more than five times higher than the Bank of England’s two percent target.

On Friday, the Chancellor announced a huge sake-up of financial policy in a bid to drastically boost economic growth.

Within the Tory mini budget, the national insurance hike is to be reversed, the cap on bankers bonuses has been lifted and the threshold for stamp duty has been raised for first time buyers.

Political commentators and economists have described the Chancellor’s announcement as a huge shift in economic policy, highlighting the measures to be more comparable to the drastic changes introduced in a full-blown budget.

Kwasi Kwarteng used the announcement to declare the Government under Prime Minister Liz Truss “won’t apologise” for the dramatic policies focused on ending the “vicious cycle of stagnation”.

The Institute for Fiscal Studies has warned that the new fiscal package is a hefty “gamble” that might not pay off for the Conservatives.

A report by the research institute claimed the path to economic growth represented an “ambitious task” and it remains to be seen if prospective growth can outweigh the huge addition to government debt.

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  • 4 часа, 36 минут назад 29.09.2022Politics
    Liz Truss warned her biggest mistake was to drop US trade deal giving ‘bully Biden’ a win

    Liz Truss has made a major tactical error in dropping the UK/ US trade deal a leading Washington insider has warned. Nile Gardiner, Director of the Margaret Thatcher Center at the Heritage Foundation, has said that Britain’s new Prime Minister needs to “stand up to Biden’s bullying”.

    Speaking to Express.co.uk in Washington, Mr Gardiner warned that Joe Biden’s administration is “completely hostile to Britain and hates Brexit” so will take her decision to pull back from getting a trade deal as “a win for the White House.”

    Mr Gardiner carries out private briefings for UK ministers and has been a long-term fixture in Washington.

    He said: “It is extremely tense between the Biden White House and the British Government at the moment.”

    Mr Gardiner also claimed the relationship between the two Governments may be the worst it has been in recent history.

    He said: “The problem is they do not want Brexit to succeed, they see Brexit and the Conservative Government with its tax cutting agenda as an existential threat.

    “It is everything they don’t stand for. A trade deal would be a vindication of Brexit.”

    Mr Gardiner is set to issue the warning to senior ministers and MPs next week when he attends the Conservative Party conference in Birmingham.

    He believes that if, as the polls suggest, the Republicans win both the Senate and House of Representatives then Biden could be forced into striking a trade deal.

    “The fact is that if there was a Republican President we would probably have a trade deal in six months but you cannot base foreign policy on what might happen.

    “With the Republicans holding both Houses the UK could force a trade deal on Biden.

    “But the Republicans who are keen to help are going to wonder ‘why bother’ if the UK drops it.

    “It is the one mistake Liz Truss has made since becoming Prime Minister.”

    He accepted that the approach of striking deals with 20 individual states had been effective but added: “The UK should not lose sight that the big prize is a US trade deal at federal level.”

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    When she flew over to the US for the United Nations General Assembly, Ms Truss revealed the US trade deal was “no longer a priority”.

    She has put joining the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) of 11 nations including Australia and Japan at the top of the list.

    It is understood that the UK Government is waiting to see if the Democrats hold on to the White House in 2024 with polls suggesting it will go back to the Republicans.

    Meanwhile, President Biden and House Speaker Nancy Pelosi have targeted the Northern Ireland protocol and tried to force the UK to accept EU terms which would see Northern Ireland split away.

    Mr Gardiner noted: “Biden and Pelosi are both very strongly influenced by the powerful Irish lobby.

    “There is a real dislike of Britain and in the end, Liz Truss has to stand up to them.”

    A change in the relationship was underlined when Ms Truss let it be known that she does not want diplomats or the US to it as “the special relationship” any more on her recent trip to New York.

  • 4 часа, 36 минут назад 29.09.2022Politics
    ‘Blatant political meddling’: IMF branded ‘EU stooge’ after UK income tax intervention

    Attempts by the International Monetary Fund (IMF) to persuade Prime Minister Liz Truss to rethink the decision to scrap the top rate of income tax amount to “blatant political meddling“, a prominent Brexiteer has claimed. Former Brexit Party MEP Ben Habib also accused the IMF of being an “a stooge for the EU” hellbent on undermining Ms Truss after its extremely rare intervention – which he admitted left him “gobsmacked”.

    In a statement issued yesterday after Chancellor Kwasi Kwarteng’s min-budget, the Washington DC-based organisation said it was “closely monitoring recent economic developments in the UK and are engaged with the authorities”.

    It said Mr Kwarteng’s scheduled announcement in November, when he will offer his new “fiscal plan”, would “present an early opportunity for the UK Government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high-income earners”.

    Mr Kwarteng’s controversial decision to scrap the 45 percent rate of income tax paid by people earning more than £150,000 a year has prompted significant criticism – but Mr Habib, also chief executive of property investment company First Property Group, suggested the financial hit to the UK economy amounted to a “rounding error”.

    Mr Habib told Express.co.uk: “It is blatant political meddling. The IMF is a stooge for the EU – it fears Truss and is seeking to undermine her premiership.

    “The cut to the top rate of income tax from 45 percent to 40 percent may have been politically naive but was neither here nor there in the overall scheme of things.

    “Its cost will be some £2billion a year. That is dwarfed by the potential cost of £150billion to cap fuel bills.

    “So I was gobsmacked to see the IMF take our government to task over that cut.

    “It did not challenge the government’s overall economic approach; it focused in only on the higher rate of tax.

    “Their intervention was entirely political, not economic.”

    So established has the orthodoxy of state borrowing and spending become that “putting power back into the pockets of the people offends them”, Mr Habib said.

    He added: “The biggest government spending commitment in history, capping fuel bills, went by without comment. They homed in on one of the smaller costs of the mini-budget.

    A “cornerstone of democracy” was allowing people to decide how they spent their own money, Mr Habib emphasised.

    He said: “The IMF, like the EU and so many other supranational institutions, holds that principle in contempt. They do not trust people to make the right decisions. They think they know better.

    “They are wrong. If we are to break from 12 years of economic malaise we must cut taxes; we must deregulate. We must strip power away from institutions and put self-determination back in the hands of the people.

    “In 2016, the IMF warned of catastrophe if we voted for Brexit. They were wrong. They are wrong again.”

    The Bank of England today launched an emergency UK Government bond-buying programme in a bid to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.

    The Bank announced it was stepping in to buy government bonds – known as gilts – at an “urgent pace” after concerns about the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.

    The move, in direct response to the Government’s tax-cutting strategy, will pile further pressure on Ms Truss and Mr Kwarteng to defend a vision for the economy which has spooked markets and shocked many mainstream economists.

    While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts – a proxy for the effective interest rate on public borrowing – has also soared by the most in a five-day period since 1976, according to experts.

  • 4 часа, 36 минут назад 29.09.2022Politics
    Kwasi Kwarteng pleads for ‘cool heads’ on pound plunge amid Tory revolt

    The under-pressure Chancellor vowed the Government will get through this tumultuous period and set his sights on rapidly boosting economic growth next year. Mr Kwarteng spoke with Conservative MPs amid growing financial turmoil following last week’s bumper tax-cutting emergency budget.

    Since his announcement the pound has plunged against the dollar and there have been widespread jitters in the financial markets.

    The IMF also took the unusual step of criticising the government’s plans on Tuesday.

    The fallout has led to some Tories calling for Liz Truss to sack the Chancellor just weeks into the job. In a call with MPs, Mr Kwarteng admitted the markets have been volatile but reportedly said they’re “settling down” now.

    And he doubled down on his decision to abolish the 45p top rate of income tax saying “it was a tough choice but the right choice”.

    Looking to the future he said he wants to see an uptick of growth in mid-2023 then a good year of growth in 2024.

    Some Tory grandees have defended Mr Kwarteng against criticism from the IMF. Tory veteran Sir John Redwood said yesterday: “The IMF was very wrong, as was the Bank of England, over the inflation which they now rightly worry about.”

    Sir John also offered a robust defence of Liz Truss’s tax-cutting plan.

    He said: “My message today is that the Government is right to see that the main threat for the year ahead is recession not inflation. Because the good news is that all forecasters say inflation will come down a lot next year, and the sooner the better.”

    Lord Frost, former Brexit secretary, said the IMF was wedded to policies that led to slow growth and weak productivity.

    He said: “The only way forward for Britain is lower taxes, spending restraint and significant economic reform.

    “Liz Truss and Kwasi Kwarteng are rightly focused on delivering this and they should tune out the criticism from those who are still in the intellectual world of Gordon Brown.”

    Lord Hannan, writing for the website ConservativeHome, said the sterling sell-off was not caused by unfunded tax cuts but by a “belief that this Budget has made a Labour victory more likely”.

    In response to the IMF criticism a Treasury spokeswoman said: “We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise caused by Vladimir Putin’s illegal actions in Ukraine.”

    Mr Kwarteng is due to set out further details on the Government’s fiscal rules on November 23. Despite Mr Kwarteng’s pleas for calm, many Conservative MPs are uneasy about the course being chartered by the government.

    North Thanet MP Sir Roger Gale commented: “I don’t think that we can wait until November, which is the current intention.

    “We need a statement in very short order indeed to steady the nerves, steady the market and set out very clearly what the business plan is so everybody understands properly where we are going.

    “The failing in the statement that was made last Friday is lack of clarity. I think that, in part, is what has led to the run on the pound and the position that we find ourselves in today.”

    Rishi Sunak, former Chancellor and Tory leadership contender who predicted market chaos under Liz Truss’s plans, is not expected to attend the Tory Party conference in Birmingham next week.

    But his former supporters are starting to criticise the new administration. Mel Stride, Tory chair of the Commons Treasury committee, said he could not understand why Kwarteng promised “more to come” on tax cuts. And another warned that Mr Sunak’s predictions are coming true “in alarming fashion”.

    The backbencher said it was “depressing” to see the turmoil caused by the new government’s dramatic tax cuts.

    The MP added: “For Rishi supporters, we love our party dearly and wanted to get behind Liz, as unlike Boris she actually appears to be a Conservative.

    “However, you can’t govern on the back of a couple of think tank pamphlets. Governing is a serious, grown-up business – it is somewhat depressing to see all the predictions Rishi’s campaign made come true in alarming fashion. Liz’s prospectus was either going to work brilliantly, or be an unmitigated disaster that would lose us the election.”

    Another Tory MP said the Chancellor cannot survive the turmoil unleashed by his new economic plan. One former cabinet minister was quoted as saying: “I think he’s dead but in the Tory party death can take many forms. It can take a long time.”

    Another member of the government, said: “Liz has a pretty quick choice to make: either she bullets her chancellor and changes course or she could lose her premiership in a month.”

  • 5 часов, 48 минут назад 29.09.2022Politics
    States appeal dismissal of suit against U.S. archivist for refusing to certify ERA ratification

    Nevada and Illinois are appealing a U.S. District Court’s dismissal of their suit against the U.S. archivist, who the states are suing for refusing to publish and certify their ratification of the Equal Rights Amendment.

    The states are seeking to have the ERA published as part of the Constitution, but their call comes decades past Congress’ 1979 deadline for ratification of the amendment — which was passed in 1972 and is intended to guarantee equal legal rights for all American citizens regardless of sex. The attorneys general for the states contend that the amendment has been fully ratified, as three-quarters of U.S. states have now voted to make it the 28th Amendment. But the U.S. archivist has declined to certify the amendment after finding the congressional deadline to be valid.

    The plaintiffs on Wednesday morning appealed the March 2021 dismissal of their suit, which had included Virginia before the state dropped out of the litigation, at the U.S. Court of Appeals. The states argued that the publication of the law would have “meaningful practical consequences,” even though both sides agree the archivist’s certification wouldn’t determine if the amendment was legally valid. Jane Notz, the plaintiffs’ attorney, said that if the amendment is published, certified and consequently officially added to the Constitution and statutes at large, it will then be admissible in court as evidence.

    “People will be more likely to take advantage of the right that our states have sought to secure for them,” Notz argued. “And in addition, that other states and the federal government that may not have brought their laws into compliance with the amendment will be encouraged to do so.”

    The District Court in March 2021 had dismissed the plaintiffs’ case on the grounds that the states had missed Congress’ deadline for ratification, but also because they failed to show the archivist’s refusal to certify the amendment had caused them any concrete injury, specifically since the archivist’s publication has no legal effect. Notz argued on Wednesday that the injury the states suffer is that “our ratifications are not being given their intended effect.”

    “The harm from the lack of publication is the fact that our states ratified the amendment in anticipation that it would be recognized as legitimate. And due to the archivist’s inaction, our purpose in ratifying the amendment is not being served,” Notz said.

    The plaintiffs also argued that the 1979 deadline Congress set for ratification was “unconstitutional,” since it was written in the proposing clause of the amendment and not the actual text. Notz said that Article V of the Constitution supports the argument that “Congress is free to propose amendments without interfering with the states’ ability to ratify amendments,” and therefore the deadline in the proposing clause of the amendment is unenforceable against the states.

    “The framers intended that the states and Congress would be co-equal participants,” Notz said.

    The defense for former Archivist David Ferriero, who had declined to publish the amendment, on Wednesday urged the Appeals Court to dismiss the case, arguing that the certification is “a ministerial act that has no substantive application.” Representing the defense, Sarah Harrington — the deputy assistant attorney general for civil appellate — also denied that the states had any injury that would be redressed by the archivist’s proclamation.

    “They talk about practical effects, they don’t really talk about what those practical effects are,” Harrington said. “They just sort of vaguely wave at practical consequences that might follow from a certification. But nothing legal follows from a certification.”

  • 6 часов, 36 минут назад 29.09.2022Politics
    Keir Starmer brands Rupa Huq’s Kwasi remark as ‘racist’

    The party leader criticised Rupa Huq and welcomed the party’s “very swift action” in suspending her membership following the comments heard at a fringe event at the conference.

    She has offered a “sincere and heartfelt” apology to Mr Kwarteng over her “ill-judged” comments after being criticised by senior Labour figures.

    The MP for Ealing Central and Acton in west London, and sister of TV presenter Konnie Huq, was suspended from the party, and therefore has lost the party whip.

    Sir Keir told LBC Radio: “What she said, in my view, was racist. It was wrong and she’s been suspended from the whip and that was done very, very quickly. I think that tells you how strongly I feel about those comments.”

    Sir Keir will hope the case’s handling will distance him from his predecessor Jeremy Corbyn, who faced allegations of dithering over cases of anti-Semitism.Later Sir Keir conceded it was “frustrating” to have to discuss the comments in a conference that has been seen as a success for Labour.

    Ms Huq was heard discussing Mr Kwarteng’s elite school background.

    She said: “Superficially he is a black man. He went to Eton, I think. He went to a very expensive prep school.”“All the way through, the top schools in the country.”“If you hear him on the Today programme, you wouldn’t know he is black.”

  • 6 часов, 36 минут назад 29.09.2022Politics
    ‘Tell people how you’re going to do it’: Young voters divided over Starmer’s Labour

    As the Labour Party conference unfolds in Liverpool, young voters spoke about party leader Sir Keir Starmer. Some of the young voters confessed their interest in Labour party politics had been sparked by Sir Keir’s successor, Jeremy Corbyn. While a selection of attendees were keen to see how the party would evolve under new leadership, others questioned Sir Keir’s focus on issues at the centre of youth politics plus details behind his ambitious policy pledges.

    Speaking to Times Radio, one young woman at the conference said: “When young people speak about Keir Starmer they think he doesn’t come across that well – he seems quite posh.”

    She added: “But, hearing him speak in person is completely different.”

    Following Sir Keir’s speech, another young person said: “It’s a lot of promises and you always question: how are you going to do that? What does that look like?

    “We know [he] understands what the issues are, but really you say you’re going to do that but maybe actually tell people how you are going to do it

    Some of the young people wanted to focus on the environment, as the Labour leadership unveilved the slogan: “Fairer, greener future.”

    While some praised Labour’s environment policy, one man told Times Radio: “The temptation as a young person is to say our biggest concern is the environment, but it’s not that simple.

    “The housing crisis is a big issue for us, university tuition fees are a big issue for us, the mess that our economy is in is a big issue for us.”

    Sir Keir Starmer has outlined plans to introduce a state-owned green energy company under the next Labour government, with a goal to achieve 100 percent clean energy by 2030.

    Greater Manchester Mayor Andy Burnham claimed young people don’t achieve value for money with the current university fees set at more than £9,000 a year. Despite this major concern for young voters, the Labour conference has not outlined a formal party approach to university costs.

    Among those interviewed at the conference, many expressed their interest in the Labour party fuelled by Jeremy Corbyn’s leadership.

    Under Corbyn, Labour took an additional 30 seats in the House of Commons in 2017 as the Conservatives lost 13. Many political analysts pinpointed the change to Mr Corbyn’s ability to mobilise previously politically disenfranchised young people.

    Ahead of the 2019 election, electoral registrations increased in 609 of the 650 UK parliamentary constituencies, with the largest increases often in areas with a high student population.

    Despite the rise in youth support and an impressive turnout of young voters, the Labour party suffered a crushing defeat at the 2019 election.

    One young attendee of the Labour conference branded Jeremy Corbyn’s defeat at the 2019 general election a “betrayal” for young people.

    A survey conducted in 2021 by consulting firm Redfield and Wilton strategies suggested 56 percent of Labour voters aged 18-24 believed Jeremy Corbyn would provide better party leadership than Sir Keir Starmer.

    Sir Keir Starmer has used the Labour conference to discuss some policies that appear to be focused on increasing youth support. The Labour Leader has set a target for 70 percent of households to own their own home, with housing previously identified as a core concern among young voters.

    In addition, Sir Keir pledged to “tackle the climate emergency,” with the environment discussed by young voters as another key political concern. The Labour Leader claimed his approach to the environment would mark a “more dynamic Britain” by building new green infrastructure and generating fresh employment opportunities.

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Politics ‘Opposite directions’: Economist warns the Government and BofE are at war over the economy