# Instant View: British pound up as govt makes U-turn on tax cut plan Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-03 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: GBP rallies as UK government backtracks on controversial tax cut plan Meta Description: Discover how the UK government's reversal of a controversial tax cut plan is affecting the pound and stock market. Expert opinions and market insights URL: https://financedigest.com/instant-view-british-pound-up-as-govt-makes-u-turn-on-tax-cut-planhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-03t065504z2lynxmpei9209zrtroptp4britain-markets-reaction-1736815106129-compressed.jpg) LONDON (Reuters) – Britain’s pound rallied although UK stocks opened weak on Monday, after the government said it was making an about-turn on a controversial [tax](https://www.financedigest.com/boardroom-attention-to-tax-compliance-up-76-thanks-in-part-to-making-tax-digital-for-vat.html) cut plan in its mini-budget. Finance Minister Kwasi Kwarteng said the government would not scrap the country’s top rate of income tax, as outlined a week ago. That proposal alongside a planned rise in corporate taxes and an expensive scheme to subsidise energy bills for households and businesses had triggered a crisis of confidence in the government, sent the pound into freefall and hammered government bond prices. COMMENTS: LEE HARDMAN, CURRENCY ANALYST, MUFG, LONDON The [market’s initial](https://www.financedigest.com/tokenized-vc-fund-spice-and-polymath-launch-industry-initiative-to-advance-tokenized-securities-market.html "Tokenized VC Fund SPiCE and Polymath Launch Industry Initiative To Advance Tokenized Securities Market") reaction is relief. It’s just £2bn of the £45bn of [tax cuts so it’s not a big deal](https://www.financedigest.com/eu-us-working-on-deal-to-make-ev-minerals-eligible-for-tax-credits-eu-official.html "EU, US working on deal to make EV minerals eligible for tax credits -EU official") but it shows the government is bowing to pressure. This probably won’t be enough on its own to restore confidence – whether that’s reversing more tax [cuts or plans](https://www.financedigest.com/inpost-sees-better-margin-in-poland-plans-no-job-cuts-this-year.html "InPost sees better margin in Poland, plans no job cuts this year") to reduce spending. Markets will still want their pound of flesh.” CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC BANK, SINGAPORE The [markets will probably](https://www.financedigest.com/the-sepsis-therapeutics-market-to-see-through-the-probable-sea-change-through-digitization.html "The Sepsis Therapeutics Market to see through the probable sea change through digitization") scrutinise on what more the Truss-Kwarteng tag team can do. For now, the U-turn in 45% tax bracket, OBR [meeting and BoE](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") action to buy longer-dated gilts have bought time and hopes, resulting in GBP rally. We caution that the [effect can fade very quickly](https://www.financedigest.com/how-can-network-operators-monetise-television-quickly-and-effectively.html "How can network operators monetise television quickly and effectively?") if issues relating to budget are not sorted out before strong USD trend re-asserts. MOH SIONG SIM, CURRENCY STRATEGIST, BANK OF SINGAPORE, SINGAPORE It should [reduce the worry about debt sustainability](https://www.financedigest.com/cobots-in-the-financial-workplace-reducing-costs-attracting-talent-and-enhancing-sustainability.html "Cobots in the financial workplace: Reducing costs, attracting talent and enhancing sustainability"), I think that was a big worry there. That should be good news for sterling. But at the same time, to make it more credible, they probably have to – which they are doing so – put it through the [Office for Budget Responsibility to get their assessment on how sustainable](https://www.financedigest.com/deutsche-bank-names-eigendorf-new-chief-sustainability-officer.html "Deutsche Bank names Eigendorf new chief sustainability officer") is the fiscal plan … It’d be even better news if they can put out the [forecasts earlier to allay](https://www.financedigest.com/cisco-forecast-raise-allays-tech-spending-fears-lifts-shares.html "Cisco forecast raise allays tech spending fears, lifts shares") market concerns. ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC [CAPITAL MARKETS](https://www.financedigest.com/digital-finance-unlocking-new-capital-in-disrupted-markets.html "Digital Finance: Unlocking New Capital in Disrupted Markets"), SINGAPORE “Beyond the knee-jerk (reaction)… withdrawing the supposed abolition of the [tax does help the fiscal impact](https://www.financedigest.com/equinor-evaluating-impact-of-british-windfall-tax-on-projects.html "Equinor evaluating impact of British windfall tax on projects") of the mini-budget. But it’s really marginal and I think in the [end it adds to the policy uncertainty](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows") surrounding UK fiscal policy. MUJTABA RAHMAN, [MANAGING DIRECTOR](https://www.financedigest.com/anya-libova-joins-apester-as-uk-managing-director.html "Anya Libova joins Apester as UK Managing Director"), EUROPE, EURASIA GROUP, LONDON “The government is in total chaos. The decision to reverse the 45% [tax rate was expected when the Commons](https://www.financedigest.com/5-common-tax-mistakes-small-businesses-make-in-australia.html "5 Common Tax Mistakes Small Businesses Make in Australia") returned on the 11th of October. And even as late as last night, the team around ( [Prime Minister](https://www.financedigest.com/economist-odor-picked-as-slovakias-caretaker-prime-minister.html "Economist Odor picked as Slovakia’s caretaker prime minister") Liz) Truss was adamant that they were not reversing at conference because there was a belief the measure is still popular with Tory members. JAN VON GERICH, CHIEF ANALYST, NORDEA, HELSINKI “From a market perspective, it is a good step in the right direction. It will take time for markets to buy the message but it should [ease the pressure](https://www.financedigest.com/analysis-china-central-bank-under-pressure-to-ease-is-hemmed-in-by-inflation-fed-jitters.html "Analysis-China central bank, under pressure to ease, is hemmed-in by inflation, Fed jitters"). “Questions still remain and sterling will likely remain under pressure.” JANE FOLEY, HEAD OF FX STRATEGY, RABOBANK, [LONDON](https://www.financedigest.com/london-listed-spac-moves-closer-to-launch-of-lloyds-insurance-vehicle.html) Clearly sterling has performed better on the news, but there are still a lot of questions, ultimately the 45 pence tax [rate was only a small part of the unfunded tax cuts](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?") announced. The question remains is this enough? The answer will be clear in a few weeks’ time when the [Bank of England](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout") measures end. UK assets, the [pound and gilts](https://www.financedigest.com/the-pound-gilts-and-stocks-likely-winners-and-losers-from-uk-budget.html "The pound, gilts and stocks: likely winners and losers from UK budget") are not out of the woods yet, and the British government has a lot to do to get back credibility. [(Reporting by London and Asia Markets](https://www.financedigest.com/sales-forecast-of-canned-motor-pumps-market-analysis-and-forecast-report-till-2030.html "Sales Forecast of Canned Motor Pumps Market , Analysis, and Forecast Report till 2030") Teams; Compiled by Vidya Ranganathan, editing by Ed Osmond) --- This blog is powered by Superblog. 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