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Truss defends turmoil-causing tax cuts

United Kingdom Prime Minister Liz Truss visits Berkeley Modular in Northfleet, southeastern England on Sept. 23, 2022. AFP PHOTOUnited Kingdom Prime Minister Liz Truss visits Berkeley Modular in Northfleet, southeastern England on Sept. 23, 2022. AFP PHOTO 

LONDON: United Kingdom Prime Minister Liz Truss on Thursday defended her tax cuts policy despite it triggering market turmoil and forcing the Bank of England (BoE) to intervene to prevent “material risk” to the British economy.

“We had to take urgent action to get our economy growing, get Britain moving and also deal with inflation,” Truss told local station BBC Radio Leeds in her first comments since the crisis sparked by Friday’s mini-budget announcement.

“And of course, that means taking controversial and difficult decisions, but I’m prepared to do that as prime minister,” she said.

“It’s important [that] the United Kingdom’s on the front foot, that we are pulling all the levers we can to drive economic growth. That is what we are pushing ahead with,” she later told BBC Radio Lancashire.

Despite being in power for less than a month, Truss is already under severe pressure after the markets reacted to her government’s tax cuts by sending the pound to an all-time low against the United States dollar.

UK markets remain highly volatile, with the BoE moving on Wednesday to buy government bonds in order to prevent a “material risk” to stability.

After the sterling hit its dollar low early on Monday, the UK central bank said it would “not hesitate to change interest rates by as much as needed” to curb high inflation.

But it also signaled it would wait until its next policy meeting on November 3 before fully assessing the impact of the government’s contentious plans.

Opposition leaders have demanded that Truss cancel her ruling Conservative party’s conference that starts on Sunday and recall parliament over the crisis.

Markets are concerned that the UK cannot fund its huge spending commitments, having announced a massive fuel subsidy package alongside the tax cuts.

“My priority was making sure that we were supporting the British people in what is going to be a very difficult winter,” she told BBC Radio Norfolk.

“There are many people with many different opinions, but what I think nobody is arguing with is that we had to take action to deal with what is a very, very difficult economic situation,” the premier said.

The pound slipped again on Thursday, while former BoE chief Mark Carney said the government had “undercut” financial institutions.

“Unfortunately, having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the Bank — has led to quite dramatic moves in financial markets,” he told the BBC.

But Truss insisted she was working “very closely” with the central bank.

In a highly unusual intervention on Wednesday, the International Monetary Fund (IMF) said it was “closely monitoring” developments and urged the government to change tack.

“We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures,” the IMF said.

“However, given elevated inflation pressures in many countries… we do not recommend large and untargeted fiscal packages at this juncture,” it added.

The Washington, D.C.-based financial institution stressed the importance of fiscal policy not working “at cross purposes to monetary policy.”

Many central banks, including the BoE, are aggressively hiking interest rates in a bid to cool decades-high inflation.

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