What happened to the markets in the 60 minutes Liz Truss was on radio?

Britain's prime minister Liz Truss was speaking on regional radio stations between 8am and 9am UK time as markets zigzag. Photo: Reuters/Maja Smiejkowska
Britain's prime minister Liz Truss was speaking on regional radio stations between 8am and 9am UK time as markets zigzag. Photo: Reuters/Maja Smiejkowska

Liz Truss has defended the government's controversial economic plans that have triggered chaos in markets.

Britain's prime minister, who did a radio round on Thursday morning, insisted big tax cuts were the right path for the nation and refused to consider reversing the £45bn tax-cutting bonanza laid out last week.

Ruling out a U-turn, Truss doubled down on the plans, saying that she needed to take "urgent action" to get the economy growing in her first public comments since Kwasi Kwarteng's mini-budget threw markets into turmoil.

Truss said she had taken "controversial, difficult decisions" but added: "I’m prepared to do that as prime minister because what’s important to me is that we get our economy moving."

The Bank of England (BoE) was forced to spend £65bn buying government gilts to repair the damage done to financial markets.

Read more: Bank of England: What will the emergency action actually do?

And analyst and traders expect the central bank to aggressively ramp up interest rates at its next meeting in November, after BoE chief economist Huw Pill hinted at a "significant monetary response" on Tuesday.

"Many investors want to see the government do a U-turn on a plan to cut taxes and increase borrowing, hoping that would help stabilise markets and be the better option for the country," Russ Mould, investment director at AJ Bell said. "Yet there is no sign of that happening."

Here's what happened to the markets in the 60 minutes Truss spent on the airwaves.

Pound

Sterling dropped 1% as soon as Truss started speaking on a round of broadcast interviews between 8am and 9am UK time.

The pound fell back below the $1.08 it had climbed to after the BoE's intervention on Wednesday. It crashed to an all-time low of $1.03 on Monday after Kwarteng hinted at additional tax cuts to come.

Read more: Why has the pound fallen and what does this mean for you?

Truss admitted "we’re facing very, very difficult economic times", but she insisted those pressures were global and caused by Russia’s invasion of Ukraine.

"And of course a lot of the measures that we’ve announced won’t happen overnight, and then we won’t see the growth overnight," she said.

"But what’s important is that we’re putting this country on a better trajectory for the long term. Of course there were elements of controversy, as there always are."

Mould added: "The main priority is bringing inflation under control yet the government’s actions in its mini-budget serve to make inflation even worse, given they’ve sent the pound tumbling.

"That will make it even more expensive to buy goods and services from abroad, leading to the prospect of even greater interest rates hikes in the future.

"Liz Truss implies that painful decisions need to be taken, but for many people the current situation is a catastrophe already."

Watch: Liz Truss defends mini-Budget as the ‘right plan’

Bonds

Investors were not convinced by Truss's comments as she defended her huge package of unfunded tax cuts, which have tipped markets into chaos.

That has spurred further selling in the bond market, sending yields surging.

According to Bloomberg data the yield on the UK 10-year gilt rose as much as 21 basis points to 4.22%, while the 30-year gilt hit 4.13%.

The move undid some of the rally the Bank provided on Wednesday by its emergency action.

Analyst at Standard Chartered warned that Threadneedle Street's intervention in the gilts market helps to keep markets "orderly" but doesn't solve problems around funding and inflation.

"[The] BoE may have to hike rates to offer more sustained support to the currency," analyst Mayank Mishra wrote.

Read more: Pound slides again as Carney accuses Truss of 'undercutting' Bank of England

He added that the market would be watching for certainty that the new bond purchases were indeed temporary, warning that it could add more pressure on sterling if it turned into another fully-fledged quantitative easing programme.

Stocks

In London, the FTSE 100 (^FTSE) fell 1.9% as the PM spoke to several regional BBC radio stations.

The losses on London's bluechip index were across the boards as markets digest the Bank of England's intervention to prop up bond markets.

Fashion retailer Next (NXT.L) was among the biggest fallers, tumbling 10.2% after it slashed its sales and profit forecasts and warned the slump in the pound would fuel a second cost of living crisis.

Rate-sensitive stocks including HSBC (HSBA.L), Lloyds (LLOY.L) and Barclays (BARC.L) fell into the red, Housebuilder Barratt Development (BDEV.L) also slid, while oil and mining stocks also dragged the index.

The domestically-focused FTSE 250 (^FTMC) tumbled 2%. Chemicals firm Synthomer (SYNT.L) crashed more than 2% after it warned on profits.

Watch: BoE launches emergency action after government tax-cutting spark cause fall in pound