Wagers against the pound over the next year have climbed to a record high in the options market, even after Chancellor Kwasi Kwarteng said he willa proposed tax cut for the country’s highest earners. That only removes £2 billion from a tax-cut package costing £45 billion.
“The U-turn represents a concerted effort to soften the narrative regarding the government’s economic agenda but little to change the direction,” said Neil Mehta, a portfolio manager at BlueBay Asset Management. “This dynamic should support the pound in the short-term, but we think this will be short-lived, as confidence in the government is shot and policies come home to roost over a difficult winter for the UK economy.
“The Chancellor is yet to reveal a clear strategy to finance its growth package so for now, his intent to reduce debt as a percentage of GDP does not seem plausible.”“The UK remains a source of market volatility,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The Prime Minister has suggested the more controversial policies were the Chancellor’s idea. So far, free markets have given a negative verdict whenever the Prime Minister or Chancellor has spoken.