US increasingly worried about UK turmoil, working with IMF

2 months ago 33

WASHINGTON - The Biden administration is alarmed over the market turmoil triggered by the new UK government's economic programme and is seeking ways to encourage Prime Minister Liz Truss's team to dial back its dramatic tax cuts.

Officials inside the US Treasury Department are concerned at the volatility in financial markets and potential spillovers to the broader economy, and are working through the International Monetary Fund (IMF) to apply pressure on Ms Truss's government, according to people familiar with the matter.

The IMF late Tuesday called on the UK to "re-evaluate the tax measures" unveiled last week that prompted historic plunges in British government bonds and the pound. The US is the Washington-based IMF's largest shareholder.

Treasury Secretary Janet Yellen declined to directly address UK policies when speaking with reporters on Tuesday. But her cabinet colleague, Commerce Secretary Gina Raimondo, was candid on Wednesday in describing Ms Truss's approach as misguided.

"The policy of cutting taxes and simultaneously increasing spending isn't one that's going to fight inflation in the short term or put you in good stead for longer-term economic growth," Ms Raimondo said Wednesday during an event in Washington.

Biden meeting

"Investors, businesspeople want to see world leaders taking inflation very seriously - and it's hard to see that at this point" in the UK approach, Ms Raimondo said.

UK government bonds, known as gilts, rebounded along with the pound on Wednesday after the Bank of England pledged to make unlimited purchases of long-dated gilts. That was after a massive surge in yields to the highest levels in two decades left London facing an imminent crash in the gilt market.

Ideological split

The plunge in UK assets earlier this week contributed to declines in US Treasuries and other government securities as well, and to further appreciation in the dollar.

Still, Ms Yellen on Tuesday downplayed the turbulence, saying tha...

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