(CNN) — UK Prime Minister Liz Truss has removed her finance minister Kwasi Kwarteng amid widespread speculation that she’s getting ready to ditch a big part of her discredited economic strategy.
A senior source inside Downing Street confirmed to CNN that Kwarteng was sacked on Friday morning after determining that speculation over his political future had become a distraction that was not in the country’s interest.
A Downing Street spokesperson said earlier that Truss would hold a news conference on Friday.
Kwarteng presented a “mini budget” just three weeks ago, promising huge tax cuts and increased borrowing with the hope of boosting UK economic growth. But the pound and government bonds crashed on fears that the plans would further juice inflation at a time when prices are already rising at their fastest rate in about 40 years.
That prompted the Bank of England to warn of a serious risk to UK financial stability and announce three separate interventions to calm a bond market meltdown that put some UK pension funds on the brink of default.
The unfunded tax cuts have been roundly criticized by investors, the International Monetary Fund, credit ratings agencies and members of Truss’ own party, some of whom are now reportedly talking about removing her just five weeks into her premiership.
Kwarteng flew back from the IMF meeting in Washington, D.C., on Friday for discussions with Truss about the plan.
“After completing a successful series of meetings at the IMF, the chancellor is returning to London today to continue work at pace on the medium-term fiscal plan,” the UK Treasury said in a statement.
As bond prices rose, the yield on 30-year UK government debt fell back to 4.3%, down from a peak of more than 5% in recent days, while the pound was last trading at $1.12. It had fallen to a record low near $1.03 on Sept. 26.
Bryn Jones, head of fixed income at Rathbones, said his team bought some longer-term UK government debt — known as gilts — earlier this week when they looked cheap — a bet that’s now paying off.
“The gilt market is doing okay, but we’ll see what happens later today and next week. Things can change quickly,” the investment manager said. “The volatility tends to suggest there isn’t a huge amount of confidence here.”
An emergency £65 billion ($73.3 billion) bond-buying program launched by the Bank of England on Sept. 28 is due to expire Friday, leaving market participants worried that bonds could slump again — driving mortgage rates and other borrowing costs even higher — if the government doesn’t rapidly explain how it plans to pay for the tax cuts.
Under pressure, Kwarteng has already brought forward his full budget statement to Oct. 31, more than three weeks earlier than planned. But investors may not be prepared to wait that long for reassurance about the state of Britain’s public finances.
The UK government has already ditched plans to slash the top rate of income tax, and media reports suggest it could also rethink plans to scrap an increase in business taxes.
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