Truss will announce an energy support plan on Thursday New prime minister rules out windfall tax on power companies Sterling falls to lowest level since 1985 against US dollar Kwarteng says borrowing will be higher BoE says energy support could help reduce inflation
LONDON, Sept 7 (Reuters) – Britain’s new Prime Minister Liz Truss on Wednesday prepared the final details of a plan to tackle rising energy bills that looks likely to reduce inflation but adds more than 100 billion pounds ($115 billion) to the borrowing of the country. In her first full day as Britain’s leader after replacing Boris Johnson, Truss told parliament she would support businesses and households bracing for a recession expected to start later this year. Sterling fell to its lowest level against the US dollar since 1985, partly due to investor concerns about the amount of debt Britain will have to sell to finance the energy bailout and tax cuts also promised by Truss. . Sign up now for FREE unlimited access to Reuters.comSign up A source familiar with the situation told Reuters that Truss was considering freezing energy bills in a plan that could cost around £100 billion, a major reversal from the rejection of “handouts” during the early stages of his leadership campaign. Conservative Party. Deutsche Bank said the energy price support and promised tax cuts could cost 179 billion pounds, or about half of Britain’s historic pandemic spending boost, which has hit the country’s public finances. Truss ruled out demands from the opposition Labor Party to fund part of the spending by raising taxes on energy businesses. “I’m against a windfall tax. I think it’s wrong to stop companies from investing in the UK,” Truss told lawmakers. He is expected to give details of the energy support plan to parliament on Thursday.
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Finance Minister Kwasi Kwarteng, also on his first full day on the job, said borrowing would be higher in the short term to support households and businesses and fund tax cuts. read more “We need to be decisive and do things differently. That means focusing relentlessly on how we unlock business investment and grow the size of the UK economy, rather than how we redistribute what’s left,” he told business leaders . The pound sank to its lowest level against the dollar since 1985 at $1.1407 and fell almost 1 percent against the euro as well. While the fall in sterling could add to inflationary pressures in the economy, the expected price freeze plan was likely to help ease cost-of-living pressure on consumers, which was shaping up to be the most severe in decades. BoE chief economist Huw Pill said the plan could slow inflation – which topped 10% in July – although it was too early to tell what the implications would be for the central bank’s rate hikes . read more The BoE forecast in August that inflation would top 13%, and some economists said it could recently top 20% if gas prices – boosted by Russia’s invasion of Ukraine – remain high. Pill also said the BoE would not allow increased government spending to fuel demand in the economy to the point of pushing up inflation. Still, investors cut their bets on a 75 basis point rate hike at the BoE’s next scheduled monetary policy announcement on September 15 to 60% from nearly 80% earlier on Wednesday. Two-year UK government bond yields also fell. Kwarteng met BoE governor Andrew Bailey and told him that “independence is really the cornerstone of how we look at managing the economy,” comments that appeared to be aimed at reassuring investors that the new government would not push the central bank. Early in the Tory leadership campaign, Truss said the government should set a “clear direction of travel” for monetary policy, although she later struck a less interventionist tone. Kwarteng said he and Bailey will meet regularly, initially twice a week, to coordinate financial support. ($1 = 0.8721 pounds) Sign up now for FREE unlimited access to Reuters.comSign up Additional reporting from the UK office Writing by William Schomberg Editing by Hugh Lawson Our Standards: The Thomson Reuters Trust Principles.
