US officials are increasingly concerned that the UK’s proposed tax cuts at a time when inflation will be crushed, a plan that has sparked jitters in financial markets.
UK Prime Minister Liz Truss’ tax cut plan has drawn criticism from economists and investors and prompted the Bank of England to calm panicked markets with an emergency intervention on Wednesday.
The Biden administration, including the Treasury Department, is concerned about the UK tax cut plan, an administration official familiar with the matter told CNN on Thursday.
The danger for the United States is that any problems on the other side of the Atlantic spill over into the global financial system and the world economy.
US Commerce Secretary Gina Raimondo criticized Truss’s plan on Tuesday, noting that the British pound has “depreciated slightly” since the proposal was introduced.
“A policy of cutting taxes and increasing spending at the same time is not going to fight inflation in the short term or put you in a good place for long-term economic growth,” Raimondo said in response to a question at an event. Organized by the Brookings Institution’s Hamilton Project.
Raimondo sought to contrast the UK’s approach with that of the Biden administration.
“We’re pursuing a different strategy … We’re taking inflation seriously, letting the Federal Reserve do its job, watching deficit spending,” he said. “Investors, businessmen want to see world leaders take inflation very seriously. And it’s hard to see that from this new government.”
Biden officials have relayed concerns about the UK plan through the International Monetary Fund, according to Bloomberg News, which previously reported concerns from US officials.
The United States, the IMF’s largest shareholder, issued a rare criticism of the UK’s plan this week and called on the country’s officials to “re-evaluate” the tax cuts.
“Given the high inflationary pressures in many countries, including the UK, we do not recommend large and untargeted tax packages at this time, as it is important that fiscal policy does not operate at cross-purposes with monetary policy,” an IMF spokesman said earlier. week.
Truss defended her tax plan, telling CNN’s Jake Tapper last week that her government encourages businesses to invest and helps ordinary people with taxes.
Some US officials have been careful not to criticize their UK counterparts directly.
US Treasury Secretary Janet Yellen on Tuesday declined to comment directly on the UK’s economic plan, although she noted that the UK faces “significant inflationary problems”, just like the US.
Asked if she was worried about the disorderly market, Yellen said that “the markets are working well” and she did not see liquidity problems emerging.
However, large swings in the bond and currency markets raise questions about how the markets work.
Following Yellen’s comments, the Bank of England announced emergency intervention. The central bank promised to buy UK government debt on “any scale necessary” to prevent a bond market crash and ease “dysfunction” in financial markets.