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  • Writer's pictureAlastair Hoyne

Finanze® Daily Digest - 28/09/2022

The Brief: The International Monetary Fund (IMF) has called Liz Truss’ tax cuts as “excessive and likely to increase inequality” and then asked the UK government to re-evaluate the plan. Chancellor Kwarteng’s mini-Budget speech last week spurred a market rout that led to a deep dive of the sterling and an excessive sell-off of UK bonds. The IMF emphasised that UK’s fiscal measures must not be in conflict with monetary policies.

Why It Matters: The tax cuts proposal has raised concerns on how it will be funded since there’s still no definite answer heard from Kwarteng or Truss. Analysts are looking forward to the Medium-Term Fiscal Plan set on November 23rd for clarity somehow. A spokesperson from IMF also opined that the fiscal measures are likely to raise inequality, according to Reuters.

Finanze® Foresights: Policy clashes between Downing Street and the Bank of England (BOE) are inevitable given that the BOE’s Monetary Policy Committee (MPC) is keeping an eye on its 2% inflation rate target in the medium term. It’s most likely that there will be another hike when the MPC convenes on November 3rd since BOE governor Andrew Bailey just ruled out any emergency meeting this week. But between today and Kwarteng’s fiscal plan announcement on November 23rd, we’re expecting further shocks in the economy until there’s a clear assurance from the government on how the proposed measures will work and how its funding can avert a deep recession.

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