Britain’s Liz Truss holds emergency talks with budget watchdog

Leonardo Rasaki

Britain’s Prime Minister Liz Truss and Britain’s Chancellor of the Exchequer Kwasi Kwarteng.

Dylan Martinez | Afp | Getty Images

LONDON — British Prime Minister Liz Truss and her Finance Minister Kwasi Kwarteng on Friday met the U.K.’s independent monetary watchdog, the Office for Budget Responsibility, for talks.

The discussions followed a turbulent week for U.K. markets and the economy, after Kwarteng laid out a “mini-budget” on Sept. 23, with the pound plummeting to a record low, the Bank of England intervening as gilt yields skyrocketed and swaths of mortgage deals being pulled as banks feared rates would become unaffordable.

Sterling has now recovered to a pre-mini-budget level, trading around $1.1118 early Friday morning.

The head of the OBR, Richard Hughes, said he had discussed the country’s economic and fiscal outlook with the two ministers, as well as the forecast being prepared for Kwarteng’s “Medium-term Fiscal Plan.”

The first draft of the forecast will be delivered to the finance minister on Oct. 7, with a full timetable for forecasts to be released next week.

The statement provided by the OBR highlighted the forecast “will, as always, be based on [its] independent judgment about economic and fiscal prospects and the impact of the Government’s policies.”

The prime minister and finance minister are now likely wishing they had refined their latest fiscal plans with experts, such as the OBR, before exposing them, according to Jagjit Chadha, director of the National Institute of Economic and Social Research.

“The kind of interventions they had in mind were not the right ones for the economy at the moment and I suspect they regret the fact that they didn’t try and expose their idea to scrutiny before exposing them,” Chadha told CNBC.

It’s also difficult to say what impact the meeting on Friday will have, but “it’s a start,” Chadha said.

“There needs to be quite an extended process now of rebuilding bridges that were almost burned in the last couple of weeks,” he told CNBC.

The OBR had prepared a general economic forecast ahead of the mini-budget on Sept. 23, but the U.K. Treasury opted not to publish it, according to the BBC.

Kwarteng said a full forecast would be published “before the end of the year” in his announcement to fellow lawmakers, and a full budget statement is now expected Nov. 23.

The IMF has since given a damning verdict of the measures laid out in the mini-budget, saying they will “likely increase inequality” and that the U.K. government should “consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners.”

A growing number of economists and investors have also slated the plans, including the founder of Bridgewater, one of the world’s largest hedge funds, Ray Dalio, who said the proposed measures suggest government “incompetence.”

The U.K. currently has an “ideological government,” according to Richard Portes, professor of economics at the London Business School.

“Some have called their economics ‘moron economics’ — I prefer to think of it as ‘faith-based’ economics,” Portes told CNBC.

“I doubt that Richard Hughes [head of the OBR] will be converted,” Portes added.

Conservative support plunges

The recent government activity has also caused the incumbent Conservative Party to lose favor with the British public. Around 54% of those surveyed would vote for the opposition – the left-leaning Labour Party – if a general election were to happen in the near future, according to the latest research by YouGov.

Labour currently has a 33-point lead over the Conservatives, which is the highest figure the party has received in any published poll since the late 1990s, according to the polling organization. Meanwhile the number of voters intending to vote Conservative has dropped to 21%.

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