A mini-budget designed to please bankers instead left many in the City of London appalled after a chaotic week that saw the value of the pound whipsaw and the Bank of England intervene in the gilts market to stave off a crash.
“This fiscal event has been a dangerous fiasco” said Simon Robertson, a former deputy chairman of HSBC Holdings Plc and one of London’s preeminent corporate advisers. “I wrote before that Liz Truss’s economic policies are voodoo economics and I think I have been proved right.”
In a series of calls and meetings this week, Kwarteng and his advisers rushed to explain their plans to Wall Street banks and global investors. In turn, the executives told the British officials that they must communicate better with the markets and waiting eight weeks to provide further details of their economic plans was untenable.
Philip Hampton, a veteran of the boards of several major British companies, said that stabilizing the situation would be key.
“Sound money and stable government behavior are very important to long term business investment,” he said. “The new leadership team did claim they’d find an entire virgin forest of magic money trees and the Conservative Party backed the team to harvest them. In a way what’s happened shouldn’t be that big a surprise.”
Read More: Top Bankers Tell Kwarteng to Communicate More to Calm Markets
The City’s lack of confidence in Prime Minister Truss’s government is striking given her government’s efforts to win over the industry. Announcing his growth plan, Kwarteng said the UK “depended on a strong financial services sector.”
“We need global banks to create jobs here, invest here, and pay taxes here in London, not Paris, not Frankfurt, not New York,” he said.
Removing the bank bonus cap was emblematic of this, but even this sop to the industry has so far failed to engender much enthusiasm. “It’s hard to see London adding jobs,” said Hampton. “Maybe a few will be retained that might otherwise be lost.”
The government hasn’t blinked. Prime Minister Liz Truss’s government signaled Friday it’s sticking with its plan for tax cuts after a meeting with the UK’s fiscal watchdog, dashing market expectations that a policy U-turn might be imminent.
And on Friday, UK Secretary of State for International Development Kemi Badenoch said the country was “in a really good place” and the “atmosphere was actually very positive.”
“Many companies, including business trade associations, are saying that the policies which were announced last week were many of the things they had been asking for,” she said, speaking in an interview with Bloomberg Television. “They still have faith in the UK.”
The views of many in the City tally more closely with the front page of one tabloid this week that featured a picture of Kwarteng meeting with some of the UK’s top investment bankers. The new chancellor had a clown’s nose superimposed on his face.
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