British Prime Minister Liz Truss’s cabinet has reconsidered its plan to cut taxes for the highest-earning citizens, which has caused a shock to the pound market. Investors feared that its implementation would lead the UK government budget into huge deficits.
Bank of England buys £65 billion worth of bonds
The British pound reacted to the tax “reverse” by strengthening against the US dollar. The island currency rebounded from its 37-year low. But before that, the Bank of England intervened in favor of the pound by buying £65 billion worth of government bonds on the market.
Tax cuts would hurt the middle class
Liz Truss’ cabinet finance minister Kwasi Kwarteng said the decision to lift the cut in the top income tax rate was taken with “some humility and regret”, the head of the state treasury was quoted as saying by Reuters. Kwarteng added that the government backed down from its plan after Conservative Party lawmakers reacted with concern to the move. A tax cut would give the most advantage to wealthy Britons, which could anger the middle class, the traditional Conservative electorate, in particular.
Further appreciation of the pound could come after the Bank of England’s next monetary policy meeting, where the Governing Council will decide on interest rates.
