- UK Prime Minister Liz Truss defended her tax-cut plan after walking back a portion of it on Monday.
- “Cutting taxes is the right thing to do morally and economically,” she said at the Conservative Party conference on Wednesday.
- The pound slipped 1.4% shortly after Truss’ speech, reversing its short-lived rally this week.
The pound fell against the dollar on Wednesday, wiping out a short-lived rally as UK Prime Minister Liz Truss defended her tax cut plan.
Her speech at the Conservative Party conference came just days after Chancellor Kwasi Kwarteng announced the government would scrap the portion of the tax cut package aimed at high earners. That raised hopes for a broader retreat from the government’s fiscal strategy, but Truss didn’t offer any hint that she would back down on the rest of her agenda.
“Cutting taxes is the right thing to do morally and economically,” she said. “For too long, our economy hasn’t grown as strongly as it should have done.”
The pound fell 1.4% to $1.13 on Wednesday, snapping a two-day rally. The sterling hit a record low against the dollar last month as markets weighed the impact of the tax cuts, which investors fear will worsen inflation and force the central bank to turn more hawkish and stifle growth.
It even spurred the Bank of England to pursue emergency intervention and begin purchasing government bonds to stabilize the debt market.
On Wednesday, Truss also called the tax cuts “difficult but necessary” initiatives that are needed to stimulate the economy and vowed to “keep an iron grip on the country’s finances.”
But experts have ripped into the idea that the unfunded tax cuts would be a catalyst for growth. Top economist Paul Krugman called the plan “moronic” policy, and interpreted the “savage” market reaction as a sign that Truss has lost some of her credibility.