Home MarketsEurope & Middle East Despite Biden’s disdain, Liz Truss is dedicated to the “trickle-down economy.”

Despite Biden’s disdain, Liz Truss is dedicated to the “trickle-down economy.”

by SuperiorInvest

British Prime Minister Liz Truss and US President Joe Biden met formally for the first time at the United Nations General Assembly in New York after clashes over economic policy between the two leaders.

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LONDON — The British government is poised to announce sweeping tax cuts for businesses and the wealthy Friday in a controversial mini-budget that shows how far new Prime Minister Liz Truss is willing to go to overhaul U.K. economic policy, even as it stokes political anger. .

Truss – whose “Trussonomics” stance has been compared to that of her political idols Ronald Reagan and Margaret Thatcher – said she was willing to cut taxes at the top end of the economic spectrum in a bid to boost UK growth. typically dubbed the “trickle-down” economy.

But the approach, which comes as Britain faces its worst life crisis in decades, has drawn criticism from both Britain’s political opponents and Downing Street’s closest international ally – the US president.

In a tweet Tuesday, Biden said he was “sick and tired of the down economy,” adding that it “never worked.”

Downing Street said it was “ridiculous” to suggest the comment was directed at Truss, according to the FT. The White House did not immediately respond to CNBC’s request for comment.

It came a day before the pair officially met for the first time in New York on Wednesday, after Truss tweeted that “Great Britain and the USA are permanent allies.”

What is expected in the mini-budget?

Britain’s growth-focused mini-budget to be announced on Friday by Britain’s new Chancellor of the Exchequer, Kwasi Kwarteng, is expected to include plans to scrap a planned rise in corporation tax, an end to the cap on bankers’ bonuses and potential cuts. duty, tax paid on the purchase of a house.

Kwarteng also confirmed ahead of time on Thursday that the government would scrap the recent increase in taxes paid by workers on earnings, known as National Insurance.

I don’t buy this argument that the tax cuts are somehow unfair.

Liz Truss

british prime minister

A ‘critical moment’ for the UK economy

On Thursday, the central bank implemented his the seventh rate hike in a row, raising the base rate by 0.5% to 2.25%. Sterling rose slightly after the announcement but remains at multi-decade lows dollar.

Analysts said the announcement will mean a “critical moment” for the direction of the UK economy, with both the government and the central bank, which operate independently, seemingly pulling in opposite directions.

“A bank trying to dampen consumer demand and a government trying to boost growth could now be pulling in opposite directions,” David Bharier, head of research at the British Chambers of Commerce trade group, said on Thursday.

Questions have also been raised about how the policies will be financed, with tax cuts expected to lead to higher borrowing. Truss argued that the resulting growth would generate more revenue to cover these borrowing costs.

“The need to increase future borrowing coupled with ongoing central bank tightening measures – this has the potential to continue to increase future borrowing costs,” Niall O’Sullivan, investment director, multi-asset strategy, EMEA at Neuberger. Berman, he said.

Matthew Ryan, head of market strategy at global financial firm Ebury, put those borrowing costs at an estimated 200 billion pounds ($225 billion).

“After all is said and done, we estimate that the government’s spending package could well exceed £200 billion over the next two years, thwarting existing plans for fiscal consolidation,” he told CNBC via email.

Ryan noted that the government’s fiscal measures could “significantly reduce the possibility of a deep and protracted UK recession”, but added that risks remained in terms of increased inflation over the medium term and an increase in the UK’s public deficit and net debt levels.

This was announced by the Bank of England on Thursday it is possible that the UK was already in recession.

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