Fri, 14 October 2022 at 10:26 am
Sterling sank 1.2% to $1.11 as news of the sacking of Kwarteng was confirmed. The slide pushed back from near one-week high of 1.135 in early trade.
It has since pared losses as currency markets digest the replacement of Kwarteng, Jeremy Hunt, who has been appointed chancellor.
The outgoing chancellor confirmed he was asked to “step aside” in an official letter posted on his Twitter.
Kwarteng, a close ally of prime minister Liz Truss, in his outgoing letter to the PM, said he had accepted her decision to sack him. “You have asked me to stand aside as our chancellor. I have accepted,” he wrote on Friday, stressing that Truss’s vision was “the right one”.
His tenure makes him the UK’s second shortest-serving chancellor on record after just 38 days in the job, behind Iain Macleod, who died of a heart attack 30 days after taking the role in 1970.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “Kwasi Kwarteng’s fate shows just how serious the UK’s loss of credibility with the markets was, as he becomes one of the shortest serving chancellors in history.
“The market will have been craving a safe pair of hands to guide the UK through this difficult period, so it will be interesting to see how gilt yields and the pound respond to Jeremy Hunt being given the difficult task of running the public purse. How long he gets to do this for will ultimately be the next question.”
Kwarteng had left the International Monetary Fund summit in Washington DC, early to address the UK’s economic crisis, but reports soon emerged after his arrival at Heathrow that he was set to be ousted.
In an address to the nation on Friday afternoon, Liz Truss vowed to see through her low-tax agenda as she announced a major U-turn, reversing on a cut in corporation tax – a key pledge in her economic plan.
The PM said her mission remains the pursuit of a “low-tax, high-wage, high-growth economy” but accepted parts of the mini-budget last month went “further and faster” than markets had expected.
Admitting she had to change course, she reversed a key policy to scrap the planned rise in corporation tax from 19% to 25%.
The government’s disastrous fiscal plan had caused market turmoil, a bailout of pension funds by the Bank of England, and rising mortgage rates.