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Pound to dollar falls after Kwasi Kwarteng sacked as chancellor by Liz Truss

Chancellor ousted amid back bench revolt over tax-cutting agenda

Matt Mathers
Friday 14 October 2022 17:29 BST
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Kwasi Kwarteng leaves Downing Street after being sacked as chancellor

The pound slumped against the US dollar on Friday after chancellor Kwasi Kwarteng was sacked by prime minister Liz Truss amid an ongoing revolt over the pair's disastrous "mini-Budget".

Mr Kwarteng was told his services were no longer required as Ms Truss attempted to regain her authority ahead of a U-turn on parts of the financial plan outlined by the chancellor just three weeks ago.

Britain's currency was trading at 1.4 per cent lower than the dollar at one point in the afternoon following Mr Kwarteng's dismissal, with £1 buying $1.1169.

Kwasi Kwarteng was sacked on Friday (Victoria Jones/PA) (PA Wire)

Earlier in the day, Mr Kwarteng had rushed back to the UK from Washington DC, where he had been attending a meeting of leaders at the International Monetary Fund, whose managing director criticised his tax-cutting agenda.

In a letter to Ms Truss posted on social media, Mr Kwarteng said: "You have asked me to stand aside as your chancellor. I have accepted."

He said her "vision of optimism, growth and change was right" and pledged to support her from the backbenches. Ms Truss appointed former health and foreign secretary Jeremy Hunt as the new chancellor.

The choice of Mr Hunt, a prominent backer of her rival Rishi Sunak in the Tory leadership contest, will be seen as an attempt to restore stability after weeks of turmoil in the wake of Mr Kwarteng’s mini-Budget.

The ousted chancellor’s financial statement to MPs in the House of Commons on 23 September sparked turmoil in the markets, prompting the Bank of England to launch a £65bn package to buy government bonds as some pension funds teetered on the brink of collapse.

It also resulted in a further hike in interest rates and an increase in mortgage costs.

Markets have not responded positively as the chaos continues (AFP/Getty)

The market turmoil also sparked a revolt among Tory backbenchers, who urged the PM to change course.

At the press conference on Friday afternoon, Ms Truss announced that corporation tax will rise from 19 per cent to 25 per cent next year in a major U-turn on her economic plans.

Insisting she is "determined to deliver" on her campaign pledges, Ms Truss refused to apologise for the political turbulence in the wake of her policies.

Asked if she would apologise to her party, Ms Truss told reporters at Downing Street: "I am determined to deliver on what I set out when I campaigned to be party leader.

"We need to have a high-growth economy but we have to recognise that we are facing very difficult issues as a country.

"And it was right, in the national interest, that I made the decisions I've made today to restore that economic stability so we can deliver, first of all helping people through this winter and next winter with their energy bills, but also making sure that our country is on the long-term footing for sustainable economic growth."

The pound swung lower after Ms Truss confirmed that the government will reverse her policy to scrap the planned rise in corporation tax.

Sterling had pared back some of its early losses shortly before the PM's speech but then dropped back, indicating that traders believe there is still more action to be taken.

The pound moved 1.2 per cent lower at 1.119 against the US dollar after the update.

Meanwhile, yields on gilts - UK government bonds, which have come under severe pressure in recent weeks - also tipped higher to 4.5 per cent, almost returning to levels from the market opening on Friday.

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