Pound sterling is recovering after UK fiscal policy was partially reversed

Partial amendments were made to the British government’s economic strategy by its Prime Minister Liz Truss, which resulted in certain growth of the pound sterling. One of the main changes was sounded in a statement delivered by Truss on Friday, in which she announced an increasing of corporation tax to 25% that will be applied since April 2023. This is different from an initial "mini-budget" strategy intended to keep the tax at 19%, which was planned by her government before.

At the moment, the main attention is focused on the UK government bonds’ performance. Last Friday, huge emergency support was provided to the gilt market by the Bank of England, and now it’s very important what’s going on with government bonds as a result of said support.

As it was said by currency strategist at Commonwealth Bank of Australia Carol Kong, in case there is a rapid growth of gilt yields, that would indicate that skepticism is still persistent in the markets, as market participants aren’t confident in the debt sustainability in Britain. In her view, there’s a great possibility that the national currency of Great Britain will still be highly volatile over the week.