A Conservative peer and former chief Brexit negotiator has said he doesn’t think “anything has gone wrong” after a day of turmoil on the markets which saw the pound briefly slump to an all-time low.
Lord David Frost described the dramatic events since Friday’s mini-budget as “unwarranted” and an “over-reaction” as the Bank of England moved to assure investors it “will not hesitate” to raise interest rates to prop up the value of sterling.
Chancellor Kwasi Kwarteng’s £45 billion package of tax cuts has prompted a run on the currency that has caused wider fears about the state of the economy.
But Lord Frost, speaking on BBC Radio 4’s PM programme as Kwarteng avoided a public statement, appeared relaxed about the pummelling of the pound.
He said: “Well I don’t think anything has gone wrong actually. Liz Truss promised change, a different economic approach to get us back to growth and away from stagnation and that means a number of things have got to happen.
“Yes, rates have got to go up to get inflation under control, we’re going to have to have lower taxes and fiscal support to get people through this period, we’re going to have lots of structural reform as the chancellor said today and we need to hold down spending in the medium term and that’s coming in November.
“So I think what we’ve seen in the last few days is (a) unwarranted and a over-reaction approach to some elements of that, you’ve got to look at the total package which is taking the country on a different direction to get us out of stagnation and get us back to growth.”
Such was the market turmoil on Monday there was growing speculation in financial markets that the Bank would make an emergency interest rate rise after it hiked rates only last week to 2.25% from 1.75%.
Instead, with the pound fragile and bond prices still tumbling, Kwarteng issued a statement just before the British stock market closed to say he would set out medium-term debt-cutting plans on November 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.
The central bank welcomed “the commitment to sustainable economic growth” from Kwarteng and the independent scrutiny that the OBR growth and borrowing forecasts would bring.
Meanwhile, banks and building societies are withdrawing some of their mortgages from sale.
Three lenders – Halifax, Virgin Money and Skipton Building Society – have so far withdrawn some of their products amid the uncertainty, according to reports.