New UK leader Liz Truss finalizes £100bn energy subsidy plan

New UK Prime Minister Liz Truss on Wednesday prepared the final details of a plan to tackle rising energy bills, which will likely lower inflation but add more than £100bn. R$ 605 billion) to the country’s debts.

In her first full day as Britain’s leader, after replacing Boris Johnson, Truss told Parliament she would support businesses and families that are bracing for a recession, expected to begin later this year.

The pound sterling fell to its lowest level against the dollar since 1985, in part due to investor concerns over the scale of the debt Britain will have to sell to fund the energy support plan and tax cuts that Truss also promised.

A source familiar with the situation told Reuters that Truss was considering freezing energy bills in a plan that could cost around £100bn, a major turnaround from her rejection of “benefits” in the early stages of the campaign by the government’s leadership. Conservative Party.

Deutsche Bank said energy price support and promised tax cuts could cost 179 billion pounds, or about half of Britain’s historic pandemic spending effort, which it has delivered. a blow to the country’s public finances.

Truss dismissed demands by the opposition Labor Party that she fund some of the spending by raising taxes on energy companies.

“I am against an unexpected tax. I believe it is wrong to discourage companies from investing in the UK,” Truss told lawmakers.

She is due to give details of the energy support plan in Parliament on Thursday (8).

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Finance Minister Kwasi Kwarteng, also in his first full day in office, said borrowing would be larger in the short term to provide support to families and businesses and finance tax cuts.

“We need to be decisive and do things differently. That means relentlessly focusing on how we unlock business investment and increase the size of the British economy, rather than redistributing what’s left,” he told business leaders.

The pound hit its lowest level against the dollar since 1985 at $1.1407 and also dropped nearly 1% against the euro.

While the pound sterling’s fall could add to inflationary pressures in the economy, the expected price freeze plan would likely help ease the cost-of-living squeeze for consumers, which had been the most severe in decades.

Bank of England (BoE) chief economist Huw Pill said the plan could slow inflation – which topped 10% in July – although it was too early to say what the implications would be for the series of central bank interest rate hikes.

The BoE predicted in August that inflation will exceed 13%, and some economists recently said it could reach 20% if gas prices – boosted by Russia’s invasion of Ukraine – remain high.

Pill also said the BoE will not allow increased government spending to fuel demand in the economy to the point of raising inflation.

However, investors scaled back their bets on a 75 basis point hike at the BoE’s next monetary policy announcement on Sept. 15 to 60% from nearly 80% on Wednesday. Yields on British two-year government bonds also fell.

Kwarteng met with BoE Governor Andrew Bailey and told him that “independence is really a cornerstone of how we view the management of the economy,” comments that appeared to be intended to reassure investors that the new government will not pressure the central bank.

Early in the campaign for the leadership of the Conservative Party, Truss said the government should set a “clear direction of travel” for monetary policy, although he later adopted a less interventionist tone.

Kwarteng said he and Bailey will meet regularly, at first twice a week, to coordinate economic support.

Translated by Luiz Roberto M. Gonçalves