The Bank of England was forced into an extraordinary intervention on Wednesday, launching an emergency bond-buying programme to prevent borrowing costs from spiralling out of control and to stave off a “material risk to UK financial stability”.
It came after the pound took another hammering, while rising interest rates and inflation has seen some experts predict a plunge in house prices next year.
Chancellor Kwasi Kwarteng has been urged to row back on the £45 billion package of tax cuts announced in last week’s mini-budget alongside hikes to government borrowing.
The announcements sent the markets into turmoil and saw sterling plunge to record lows against the dollar.
Conservative peer and Brexiteer Lord Hannan and Tory donor Lord Ashcroft suggested the crisis is being driven by concerns over a possible Labour government.
Hannan, one of the key Conservative voices behind the push to leave the EU, wrote on the Conservative Home website: “What we have seen since Friday is partly a market adjustment to the increased probability that Sir Keir Starmer will win in 2024 or 2025 – leading to higher taxes, higher spending, and a weaker economy.”
He suggested the reaction to the mini-budget, which prompted a rebuke from the International Monetary Fund (IMF), was driven by “motivated reasoning”.
Labelling the response to Friday’s fiscal statement as “widely mischaracterised”, he suggested the dramatic sell-off of sterling was partly prompted by a “belief that this budget has made a Labour victory more likely”.
Watch: IMF heaps pressure on Kwasi Kwarteng over tax cuts
His sentiments were echoed by Lord Ashcroft, the former deputy chairman of the Tories whose peerage was mired by controversy after being described as a tax exile.
Ashcroft tweeted he was told by a currency trader that a driver to sell sterling was due to a “concern that Labour could form the next government”.
Hannan’s article was praised by Lord Frost, the former Brexit negotiator, who called it an “excellent piece”.
However, many mocked the article online and rubbished the peers' analysis.
Stephen Farry, the deputy leader of the Alliance Party, said the article was “perhaps the most bat-s**t crazy take to date on the Conservatives self-inflicted financial crisis”.
Labour MP Preet Kaur Gill said Ashcroft’s tweet was “insulting”, adding: “The IMF intervening on a G7 nation tells you how serious this is. An utterly shameful position to put Britain in!”
Author John O’Farrell tweeted: “You know we have moved to the next phase when all the Tory disasters are no longer the fault of the last Labour government but are now the fault of the next Labour government…"
Kwarteng’s plan has prompted unease among some Tory MPs even as the free-marketeer wing of the party played down concerns about the impact of the tax-cutting strategy.
In a robust defence of the government, Hannan urged the chancellor not to heed the concerns about his plans.
“He has to show that he is serious, that he cares more about long-term prosperity than about short-term headlines.
“That is why it would be bad politics, as well as terrible economics, to back down.”