BRITAIN‘s new Prime Minister Rishi Sunak on Wednesday delayed the announcement of a keenly awaited plan for repairing the country’s public finances until November 17, two-and-a-half weeks later than originally planned.
The postponement, Sunak’s first policy decision since taking over from Liz Truss on Tuesday, pushed up British borrowing costs in financial markets but by far less than seen in the panic bond selling caused by Truss’s September tax-cutting plan.
Finance minister Jeremy Hunt announced the delay in a televised statement, saying it would take more time to ensure the new plan took into account the latest economic forecasts.
“The prime minister and I have decided that it is prudent to make that statement on the 17th of November,” Hunt said.
The plan is expected to set out how the government will plug a budget shortfall of as much as 40 billion pounds ($46 billion). Unlike Truss’s plan last month, it will be fully audited by Britain’s fiscal watchdog.
A statement from Sunak’s office said he told his newly assembled cabinet that it was “important to reach the right decisions and there is time for those decisions to be confirmed with cabinet.”
Britain’s credibility in financial markets was shaken last month when Truss announced her unfunded tax cuts, triggering a bond market rout so severe the Bank of England had to intervene and Truss was forced into a U-turn and eventually resigned.
“Our number one priority is economic stability and restoring confidence that the United Kingdom is a country that pays its way and for that reason, the medium-term fiscal plan is extremely important,” Hunt said.
“I want to confirm that it will demonstrate debt falling over the medium term.”
Market reaction
Sunak previously served as finance minister during the COVID-19 pandemic, overseeing huge expenditure and borrowing to keep the economy going. He resigned in July in protest at then-prime minister Boris Johnson’s leadership and what he saw as a reluctance to take decisions to pay the pandemic bill.
His appointment as Conservative Party leader, following Truss’ short stint, was broadly welcomed by investors who see him and Hunt as more willing to tackle the black hole in Britain’s public finances.
British government bond prices extended their losses on confirmation of the budget plan delay. Long-dated gilt yields hit new session highs as they rose 12-13 basis points on the day before easing back a bit.
Sterling was little changed by the announcement.
The movements in the bond market were small compared with the huge sell-off triggered by Truss in September.
The budget plan delay will complicate the BoE’s job next week when it is due to publish forecasts for the economy without knowing the details of the government’s fiscal plans, as well as take its latest monetary policy decision.
The BoE is expected to raise interest rates again on Nov. 3, probably to 3.0% from 2.25% although investors increased their bets a full percentage-point increase to a more than one-in-three chance after the announcement of the budget plan delay.
Speaking earlier on Wednesday, International Monetary Fund chief Kristalina Georgieva told Reuters she expected Sunak to steer Britain towards fiscal sustainability and said he was right to warn of hard decisions ahead.
“I listened carefully to him talking to the British people, and this is a message that should resonate across the world. These are tough times, and tough times require tough decisions,” Georgieva said.
