'Eye off the ball': Liz Truss’s ‘favourite’ economist says Chancellor overstepped mark


Mini Budget ‘not what markets expected’ says Truss adviser

Prime Minsiter’s Liz Truss’s ‘favourite’ economist has criticised her Chancellor Kwasi Kwarteng and said he had “taken his eye off the ball” after his mini-budget spooked markets and shocked most mainstream economists. Gerard Lyons, often described as the Tory leader’s favourite economist, said Kwasi Kwarteng had not “prepared the markets for what he was doing in the budget”. 

Speaking on Sky New’s The Take With Sophy Ridge, Mr Lyons said: “The chancellor, whilst he had focused on the general public and on British businesses, he had not really prepared the financial markets fully.

“And I think he had taken his eye off the ball slightly, shall we say, in having not prepared the markets for what he was doing in the budget and I felt that he overstepped the mark last week.

“So it was a combination of all three factors – the febrile markets because of the global backdrop, the actions of the Bank of England last Thursday, but let’s be in no doubt, it was primarily the mini-budget last Friday that triggered this latest series of events.”

liz truss

Kwasi Kwarteng’s mini budget has sparked financial turmoil (Image: GETTY )

liz truss

Liz Truss and Kwasi Kwarteng released the mini budget on Friday (Image: GETTY )

Mr Lyons said he had “made my thoughts known” to Ms Truss and her team by “highlighting in my writing… about the febrile state of the markets and the need to keep the markets onside”.

Asked whether she had taken his advice, Mr Lyons replied: “Well, sometimes people listen, sometimes they don’t, but there were positives that came out of it. But as we saw last Friday, there was just not enough in line with what the markets had been prepped for and were expecting.”

It comes as the Bank of England launched an emergency UK government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a “material risk to UK financial stability”.

READ MORE: City traders fume at Liz Truss and predict her imminent demise

 

liz truss

Gerard Lyons is referred as Liz Truss’s favourite economist (Image: SKY NEWS )

The Bank announced it was stepping in to buy up to £65 billion worth of government bonds – known as gilts – at an “urgent pace” after fears over the Government’s economic policies sent the pound tumbling and sparked a sell-off in the gilts market.

It said: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.

“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.

“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.”

The Treasury responded by reaffirming its commitment to the Bank of England’s independence and said the Government “will continue to work closely with the Bank in support of its financial stability and inflation objectives”.

The Bank said it would buy bonds “on whatever scale is necessary” in order to steady gilts after Chancellor Mr Kwarteng’s mini-budget last Friday spooked the markets with his package of tax cuts and increased borrowing.

DON’T MISS
Defiant Truss comes out fighting to defend economic chaos [INSIGHT]
BBC host puts Truss on spot as he questions budget [VIDEO]
‘No longer proud to be British’ Veteran slams Liz Truss over economy [OPINION]

Liz truss

Kwasi Kwarteng is under mounting pressure after his budget (Image: GETTY )

It said the bond-buying programme would be temporary, starting from today until October 14.

The Bank added: “The purpose of these purchases will be to restore orderly market conditions.” 

The market turmoil had forced pension funds to sell government bonds to head off worries over their solvency, but this was threatening to see them suffer severe losses and was creating a downward spiral in gilt prices as more were offloaded.

The Bank’s extraordinary intervention, responding directly to the Government’s tax-cutting strategy, will pile further pressure on Ms Truss and Mr Kwarteng to defend their vision for the economy.

While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts – which is a proxy for the effective interest rate on public borrowing – has also soared by the most in a five-day period since 1976, according to experts.

The scale of the crisis in the markets has led to unease in some quarters of the Tory party, while Labour has joined calls for Parliament, currently on a conference recess, to be recalled.

However, the Financial Secretary to the Treasury Andrew Griffith insisted the Government was sticking to the plan set out by Mr Kwarteng in the Commons on Friday.

liz truss

Liz Truss remains defiant after the mini-budget sparked financial turmoil (Image: GETTY )

“What the Chancellor and I are focused on is delivering that economic growth plan,” he said in a pooled clip for broadcasters.

“We think they are the right plans because those plans make our economy competitive.”

In a bid to reduce future borrowing, the Government is set to ask Cabinet ministers to make efficiency savings in their departments’ existing budgets to help balance the public finances, according to the BBC.

It all comes just days before Tory MPs and thousands of members will descend upon Birmingham for Liz Truss’ first party conference as Prime Minister.



Leave a Reply

Your email address will not be published.