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Friday, December 9, 2022
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Sterling rises as uk rolls back tax-cutting plans

Sterling

The pound was up around 0.9% to $1.1259 by around midday London time, extending gains after rising for much of the morning session

Sterling rose against the dollar on Monday alongside government borrowing prices as U.K. Finance Minister Jeremy Hunt rolled back swathes of the government’s controversial tax-cutting plans.

The yields on long-dated U.K. government bonds, known as gilts, fell during a statement delivered by British Finance Minister Jeremy Hunt.

The yield on 20-year gilts was down 42 basis points during the statement, dropping to 4.439%. 30-year index-linked gilt yields were also down 42 basis points to 4.368%. 10-year gilt yields fell 34 basis points to trade around 3.981%. Yields on 5-year and 2-year gilts also slid Monday. Yields move inversely to prices.

The pound was up around 0.9% to $1.1259 by around midday London time, extending gains after rising for much of the morning session.

The market moves follow a dramatic day in British politics on Friday, which included big fiscal U-turns from Prime Minister Liz Truss and the sacking of Finance Minister Kwasi Kwarteng. He was swiftly replaced by Hunt, who made his emergency fiscal statement at 11 a.m. local time on Monday.

The major U-turn included scrapping the cut in the lowest rate of income tax from 20% to 19%, as well as cuts to dividend tax rates, the reversal of off-payroll working reforms, VAT claim-backs for tourists and the freeze on alcohol duty rates.

The announcements Monday came two weeks ahead of schedule. However, the full medium-term fiscal plan is still set to be published on Oct. 31, accompanied by a forecast from the independent Office for Budget Responsibility — something that was lacking in the original mini-budget announced on Sept. 23 which roiled U.K. bond markets.

In a research note Monday morning, Kit Juckes from Societe Generale said the message the U.K. government now wants to send to the markets is ‘nothing to see here, please go about your normal business.’

I’m not sure it will be quite that simple, but gilt yields should fall, sterling volatility should melt away and all we’ll be left with will be recession, austerity, higher rates and a lingering sense that this sterling crisis, more than its predecessors, was homemade and avoidable, he added.

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