Chaos caused by former chancellor Kwasi Kwarteng’s short-lived mini-budget featuring £40 billion worth of tax cuts and spending increases has damaged the UK’s reputation, Bank of England Governor Andrew Bailey told MPs on Wednesday, with new Chancellor Jeremy Hunt expected to announce a series of major tax increases alongside spending cuts.
“We have damaged our reputation internationally… it will take longer to rebuild that reputation than it will do to correct the gilt curve,” Bailey told the House of Commons Treasury Committee.
Although Kwarteng was sacked within two weeks of announcing the plan, which prompted a run on the pound and government bonds, the fallout resulted in the collapse of Liz Truss’s premiership after six weeks.
The legacy of the Truss government’s experiment will be felt on Thursday, when Hunt is expected to unveil major tax increases worth £60 billion for all middle and high-income earners, alongside spending cuts. Among the changes, the cap on energy bills, which the government set to protect households from the worst effects of price increases, rises from £2,500 per year to £3,000.
More economic pain is expected in the coming months. Despite a series of increases to interest rates, inflation has hit 11.1%, the highest level since 1981, and the UK’s exit from the EU is partly responsible for higher food prices, Monetary Policy Committee member, Dr Swati Dhingra, told MPs during the same hearing
In relation to food pricing, “6% is the number that is higher than the rest of the world as a result of the Brexit impact”, Dhingra said.
(Benjamin Fox | EURACTIV.com)