The pound jumps after the UK government says it will abandon its plan to cut taxes for the rich




  • In Business
  • 2022-10-03 07:40:03Z
  • By Business Insider
Kwasi Kwarteng
Kwasi Kwarteng  
  • The British pound jumped Monday after the UK government abandoned its plans to cut taxes for the rich.

  • The UK currency climbed to close to where it sat before the policy was announced last month.

  • Investors were spooked by the fiscal plans, which undermined their confidence in the UK as a safe bet.

The British pound rose sharply against the dollar early Monday after the UK government made a U-turn on its its plan to cut taxes for the rich, which had spooked investors and rattled markets.

The UK's finance minister, Kwasi Kwarteng, on Monday confirmed earlier reports the government was poised to abandon the plan to abolish the 45% top rate of income tax, the BBC reported.

The pound touched $1.1263 after the reports emerged, back near the levels it traded at on September 23 before Kwarteng announced the new government's tax and spending proposals. It was changing hands at $1.1202, up about 0.4%, at last check at 3:30 am ET.

The UK currency tumbled to an all-time low last Monday after Kwarteng hinted Sunday there could be even more tax cuts coming.

Investors were spooked by the debt-funded policy, which weighed on stocks and other markets. They were concerned it would fuel inflation, lead to a faster pace of interest rate rises, and undermine the UK's already struggling economy.

The U-turn comes after a number of lawmakers from the ruling Conservative party spoke up against the planned tax cuts and as polls showed popular opposition to the move. The proposals were the most aggressive in nearly 50 years, as they scrapped the top rate of income tax and slashed basic rates by 1%.

The International Monetary Fund sharply criticized the sweeping fiscal package, which also included plans to abandon a scheduled rise in the national insurance rate (social security tax) and to lower taxes on property purchases below 250,000 pounds. The IMF said it would work at cross-purposes with the Bank of England's monetary tightening to combat inflation.

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