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Sterling slid as much as 4.7 per cent against the dollar to $1.035, hitting a record low in Asian trading today after UK chancellor Kwasi Kwarteng vowed to pursue more tax cuts.
Kwarteng on Friday unveiled a £45bn debt-financed package containing the biggest set of tax cuts for 50 years. UK government bonds sold off sharply, with the 10-year gilt yield surging 0.27 percentage points on heavy selling to hit 3.77 per cent.
The chancellor added on Sunday that there was “more to come” despite the historic sell-off.
The tax cuts come as the UK is expected to spend £150bn on subsidising energy costs for consumers and businesses. A large portion of this borrowing is to be financed by gilts.
Unlike big tax cuts in the 1980s, Kwarteng is borrowing tens of billions of pounds to fund his plans, adding to demand even as the Bank of England raises rates to bring inflation under control.
Kwarteng’s fiscal shift has split Conservative MPs between rightwingers who favour a radical agenda and others who think he has gone too far.
Opinion: The new government’s economic strategy is irresponsible, eccentric and regressive, argues David Laws, former Liberal Democrats minister. Commentator Toby Nangle writes that the brutal sell-off in government debt was as bad a one-day verdict as any chancellor could fear.
Thanks for reading FirstFT Europe/Africa. Here is the rest of the day’s news — Jennifer
Five more stories in the news
1. Far-right storms to Italian election victory A coalition led by the arch-conservative Brothers of Italy has won a decisive victory in a snap election, putting it in position to form Italy’s first far-right government since the second world war and its leader Giorgia Meloni to become the first female prime minister since Italian unification in 1861.
2. Western allies boost nuclear deterrence Countries are making contingency plans in case Russia’s president Vladimir Putin acts on threats of nuclear attacks against Ukraine, sending private warnings to the Kremlin about possible consequences, according to western officials.
Trouble at home: Protests against Putin’s mobilisation of hundreds of thousands of reserve soldiers spread across Russia at the weekend. Kyiv expects the conscripts to appear in Ukraine within two months.
3. UAE agrees LNG deal with Germany The United Arab Emirates has agreed a deal to supply liquefied natural gas to Germany as Chancellor Olaf Scholz visited the Gulf state as part of a regional tour seeking to drum up alternatives to Russian energy. The supplies will be the first delivered to a new import terminal on Germany’s northern coast.
4. Investors pile into insurance Investors are buying record amounts of insurance contracts to protect themselves from a sell-off that has wiped trillions of dollars off the value of US stocks this year. Purchases of put option contracts on stocks and exchange traded funds surged to $9.6bn in the past week alone.
5. Denmark warns of oil spills Tankers of Russian oil sailing through the Danish straits are more likely to crash and spill cargo if they transit the shallow treacherous waters at the mouth of the Baltic Sea without specialist pilots as a result of sanctions, the country’s maritime authority has warned.
The day ahead
EU crisis meeting on Russian emigration Ambassadors will convene under the bloc’s crisis mechanism, designed to co-ordinate disaster responses, to discuss increased arrivals from Russia following Vladimir Putin’s mobilisation order, as Finland joined other neighbouring countries in saying it would ban Russian tourists.
Labour’s £8bn green investment plan Shadow chancellor Rachel Reeves will announce a “National Wealth Fund” to co-invest with private companies in green projects ranging from battery factories to wind farms at the party’s conference. Shadow business secretary Jonathan Reynolds will outline new industrial strategy plans.
Economic indicators The OECD publishes its near-term global economic outlook after projecting that global gross domestic product would slow sharply this year to about 3 per cent. Germany publishes the September Ifo business climate index, which edged down to a record low last month since June 2020.
Elizabeth Holmes sentencing The founder of blood testing start-up Theranos, who was convicted in January on three counts of wire fraud and one of conspiracy to commit wire fraud, faces up to 20 years in prison. (FT, NYT)
Nasa’s Dart mission The US space agency will crash a spacecraft into an asteroid at 23,000kph in order to divert its path. The $300mn Double Asteroid Redirection Test has picked the asteroid Dimorphos as its target because it orbits another asteroid rather than the sun.
Keep up with the important business, economic and political stories in the coming days with the FT’s Week Ahead. Click to subscribe here. And don’t miss our FT News Briefing audio show — a short daily rundown of the top global stories.
What else we’re reading
The seven economic wonders of a worried world In periods of economic gloom, it is worth highlighting the few countries that defy the prevailing pessimism. Ruchir Sharma outlines seven that stand out in a world tipping towards recession.
How abortion rights are upending the US midterms The Supreme Court’s decision to strike down the half-century Roe vs Wade legal precedent, rescinding the constitutional right to terminate a pregnancy, is energising Democrats and unsettling Republicans ahead of November’s midterm elections.
Kwarteng invokes the spirit of Thatcher Defending his controversial borrow-and-tax-cut mini-Budget, Kwasi Kwarteng invoked the spirit of Margaret Thatcher. Economists, however, said his policies had more obvious roots in US history and the 1970s. Some international observers think the UK has lost the plot.
Men who get their legs broken to gain height are not entirely mad Study after study shows that it pays to be taller than average, especially for men. Does that explain the grisly new trend of leg lengthening? Pilita Clark has done some research and has words of caution for anyone thinking of undergoing the procedure.
Talent wars: why businesses have to battle to hire the best From technology to hospitality, construction and life sciences, employers are experiencing a talent crunch. The rise of remote working has had a knock-on impact on “deskless” workers, with potentially dire consequences for some industries. Anjli Raval reports on the climate facing hiring managers.
HTSI published its autumn 2022 arts special this weekend. Highlights include how artists in Ukraine are responding to the war, an interview with one of Broadway’s youngest producers on artists discussing their muses.
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