Pound falls after Liz Truss U-turn as IFS warns 'piecemeal' changes won't be enough

Liz Truss' offer to calm markets in sacking his Chancellor and the corporate tax reversal appear to have failed as the pound fell again and the cost of government borrowing rose after his press conference on Friday. positive early on Friday after reports that parts of the Truss government's tax cut mini-budget would be axed.

But markets didn't react well to the Prime's seven-minute appearance minister at No 10, during which she announced she would let corporation tax drop from 19p to 25p and replace Kwasi Kwarteng with Jeremy Hunt.

After the stock markets closed, the pound fell 1.2% and could only buy 1.12 USD dollars. Ms Truss' update on her plans also sparked a worrying new rise in gilt yields - borrowing costs that rise as government bond prices fall.

The yield 30-year UK government bonds rose 0.3 percentage point to 4.8%. cent - representing a further increase in the cost of government borrowing.

Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank, said the "fragmentary" announcements - and the change of chancellor - would not be enough to reassure the markets, saying that the credibility of the Truss government had been "lost".

"We still do not have an economic policy statement, fiscal policy, or any idea how we are going to achieve fiscal sustainability,” Mr Johnson told BBC Radio 4's PM:

The leader of the IFS added: "I think the problem is that credibility has been lost and these piecemeal announcements, these piecemeal announcements of sacking a chancellor or changing a tax here or there, is not going to reduce it."

Pressure on Tuesday after traders spooked by strong message from Bank of England Governor Andrew Bailey , under which the central bank's emergency bond-buying program would not be extended beyond Friday.

However, an increase in gilt purchases by the Bank towards the end of this week, along with rumors of major reversals in government policy, have helped prices recover.

But the response to Ms Truss' intervention on Friday afternoon suggests markets believe still that further changes and more clarity are needed from No 10 and the Treasury.

The Prime Minister and his officials have reportedly considered reversing plans for VAT-free shopping for overseas visitors and reduce taxes on dividends. But Ms Truss only announced a U-turn on corporation tax - worth £18billion a year to Treasury coffers.

Mr. Johnson said the government would now be "desperate" to get to the budget statement on October 31. The IFS chief highlighted a significant 'change of tone' from Ms Truss on the prospect of major spending cuts to come.

Signing that significant cuts in real terms were on the way , Ms Truss said: 'We will control the size of the state...And spending will grow more slowly than expected.'

Mr Johnson replied: 'On Wednesday we heard from the Prime Minister say there was no spending cuts. Today we heard the Prime Minister say that spending slower than planned. Well, as I said, slower than planned, that seems to me a bit like cuts."

Torsten Bell, chief executive of the Resolution Foundation, said the limited nature of the U-turn on taxes meant deep cuts. to public spending would still be needed.

"So more than half of the tax cuts are still on the way. What does that mean? £20-40bn of cuts spending is yet to come,” the think tank leader tweeted. £65billion he pledged to back the market at the end of September - spending just £1.5billion on the last day.

Nick MacPherson, former senior government official Treasury, said Bank of England Governor Andrew Bailey had been responsible for a major shift in economic policy by the Truss government.

"All credit goes to Bailey of the Bank ...whose Friday deadline forced the government to adopt a more orthodox economic policy...