British pound jumps on reports of more budget u-turns

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The British pound jumped against the dollar Thursday on media speculation the government was mulling more U-turns over its debt-fueled budget, but the reports were swiftly denied by Downing Street.

Sterling rebounded 1.5 percent to $1.1277 on reports that officials were discussing how to back away from costly tax-slashing measures that sparked markets turmoil.

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However, a spokesman for Prime Minister Liz Truss insisted that there would be no more U-turns over the controversial mini-budget.

“The position has not changed,” he told reporters.

Finance minister Kwasi Kwarteng last month slashed tax and froze energy prices in a bid to boost Britain's battered economy and ease a cost-of-living crisis.

The announcement had sent shockwaves through markets as investors fretted over potentially eye-watering levels of debt.

And it forced the Bank of England to jump into bond markets to help protect financial stability.

Truss is facing the political heat just over a month into office, with one prominent insider in her ruling Conservative party saying some MPs were actively considering a push to replace her.

She tried to calm nervous MPs at a closed-door meeting on Wednesday night where one accused her of trashing the Tories' record in power.

Truss had earlier insisted she would forge ahead with her economic programme.

“It would appear discussions are underway for further humiliating U-turns,” Oanda trader Craig Erlam told AFP after Thursday’s reports.

“The scale of the U-turns will determine the rally in sterling and the decline in yields.”

UK bond yields fell back Thursday in a sign of investor relief.

Yields had leapt Wednesday after the Bank of England confirmed it will on Friday halt its short-term bond-buying support, which was aimed at quelling market volatility triggered by the budget.

Kwarteng was forced last week to axe his proposed tax cut for the richest earners, faced with outrage as millions of ordinary Britons suffer from rocketing inflation.

And in another about-turn, Kwarteng has brought forward his debt-reduction plans and economic forecasts to Hallowe’en, or October 31, instead of late November.

Erlam noted Thursday that any more U-turns “will also determine the fate of Kwarteng, whose tax cuts triggered this meltdown.”

He added: “He already looks a dead man walking and at this rate, he may not make it to the Halloween budget.”

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