British Prime Minister Liz Truss.
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The pound rose Friday after UK government leaders agreed to talks with independent budget experts.
Sterling, which slid on the prospect of tax cuts, briefly erased its losses against the dollar.
The debt-funded policy undermined investors’ confidence in the outlook for the UK economy.
The British pound rose against the US dollar Friday, after UK government leaders agreed to hold emergency talks with independent budget experts over a tax-cutting plan that rocked markets.
The sterling selloff this week was sparked by the UK’s finance minister, Kwasi Kwarteng, last Friday putting forward sweeping proposals for debt-funded tax cuts that undermined investors’ confidence in the UK economy.
The gains in the UK currency came after Kwarteng and Prime Minister Liz Truss agreed to talks with the Office for Budget Responsibility on Friday, a highly unusual move. The government has come under criticism for choosing not to publish an assessment of the debt and spending impact of its plans from the independent fiscal watchdog.
In Asian trading Friday, the UK currency erased the losses it logged in falling to an all-time low of $1.035 on Monday, from $1.256 last Thursday. The pound hit $1.233 in Asia and was last up 0.16% in Europe at $1.114.
Traders are betting that political pressure on the government will force it to ease back on its tax-cutting plans, which have drawn criticism from the International Monetary Fund and ratings agency Moody’s. There are concerns that the UK’s looser fiscal policy could fuel inflation, prompt faster interest-rate hikes, and undermine Britain’s already-shaky economy.
US stock futures and European equities were also signaling some recovery from the market turmoil that came in the wake of the pound’s slump. Futures on the Dow Jones were up 0.57%, while S&P 500 futures rose 0.71% and Nasdaq futures were 0.68% higher. The pan-European Stoxx 600 rose 1%, and London’s FTSE 100 was up 0.52%.
Official figures released Friday showed the UK economy grew by 0.2% between April and June, compared with expectations for a 0.1% contraction — a sign that it is not already in recession. That helped ease some investor worries, analysts said.
The turmoil in financial markets prompted a rare intervention by the Bank of England, which said it would temporarily buy as many UK government bonds as needed to stabilize debt markets, and delay the start date for its bond sales.
It also drew a sharp rebuke from the IMF, which warned the UK government’s policy could work at cross-purposes to the BoE’s efforts to cool red-hot inflation.