Kwasi Kwarteng on the brink?
Asked in Washington this afternoon whether he will be chancellor next week, Kwasi Kwarteng replied: “Absolutely 100%, I’m not going anywhere.
When also asked about rumours that there would be more U-turns in his recent mini-budget, the Chancellor, who was at the annual IMF meeting, kept to the government’s script, saying there would be no more changes.
Yet Kwarteng’s denials did little to calm the mood at Westminster. The rumour mill was in overdrive this evening with stories that he was on the brink of resigning. Several Tory MPs – antagonistic to the new PM – were openly arguing that the most elegant way of Liz Truss restoring some sort of credibility to her regime was for the Chancellor to resign of his own accord.
For now, Truss looks set on keeping her Chancellor in situ. Yet No 10 is also said to be in a state of panic about knowing how – and where – to turn to next in its effort to bring authority back to the new leadership.
The big question is whether the gilts market will return to some sort of stability tomorrow when the Bank of England’s bond-purchasing programme is due to come to an end. Gilt prices rose today.
Ironically, Kwarteng’s future as Chancellor may have been buttressed by the latest shocking inflation figures from the US which will inevitably lead to higher interest rates following the Federal Reserve’s determination to stamp down on rising prices. As Kwarteng repeated this afternoon, there was “some turbulence” after the mini-budget but it’s a “very dicey situation globally”. And so it is.
Consumer prices rose faster than expected in the US last month, at a rate of 8.2% – above the forecast 8.1% rise. The core rate of inflation rose by 6.6% against the forecast increase of 6.5%.
These figures dash any hope that the hawkish Federal Reserve will slow down the pace of its interest rate hikes anytime soon.
The Fed’s efforts to tame inflation are being closely monitored across the world because they have big implications elsewhere: higher inflation in the US means higher rates and increases global borrowing costs.
This gloomy news threw a curveball just as UK government borrowing had fallen slightly today, and sterling made a slight recovery – jumping from $1.11 to near $1.13 against the dollar. After the US data landed, sterling fell back to $1.12. Some of the improvement came from the hopes that No 11 will make some adjustments to its tax cuts, specifically that the government is looking again at going ahead with rises to corporation tax.
Higher US inflation – and higher interest rates – will also intensify the eurozone crisis. European stocks and bonds fell today after the new figures landed, with the euro down 0.7% to $0.9636.
This will unnerve Germany, which is already facing 18% food inflation, 10% inflation and now predicted to be in serious recession next year. And what happens in Germany has a ripple effect throughout the eurozone.
Although inflation in France is slightly more manageable, Macron has his own economic woes to contend with. Blockades of fuel depots by refinery workers striking in pursuit of an inflation-based pay rise threaten to bring the country to a standstill. And Macron’s harsh budget – expected to slash spending – is set to cause a parliamentary clash between the far left and the far right. Whether it will match Kami-Kwasi’s explosive budget is yet to be seen.