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Bank of England steps in to stabilize UK economy as pound plummets

LONDON — If anyone thought Britain needed a period of calm after Boris Johnson’s tumultuous prime minister, no one told his successor.

The country was already facing an ugly menu of challenges. But the solution proposed by new Prime Minister Liz Truss quickly threw the economy into chaos, threatening both immediate and lasting consequences for many Britons.

His Conservative government’s 45 billion pound ($48 billion) plan to cut taxes – especially for the country’s highest earners – has sent shockwaves through financial markets, sending the pound plummeting and leaving the Truss’ own political future in sudden doubt just three weeks after taking office.

Prime Minister Liz Truss’ government unveiled a financial plan last week that has sparked market concern and public criticism. Charles McQuillan/Getty Images

After days of turmoil, the UK has drawn a rare scathing rebuke from the International Monetary Fund, which has urged the government to ‘reassess’ a plan that could fuel already soaring inflation and increase inequality economic.

The Bank of England, the UK’s central bank, carried out its own emergency intervention on Wednesday, announcing that it would buy up as much government debt as needed in a bid to restore stability.

Keir Starmer, the emboldened leader of the opposition Labor Party, joined others in urging the government to resolve the crisis by recalling parliament, which is in recess.

Bank of England steps in to stabilize UK economy as pound plummets

Few Britons actually voted for Truss, who won the race to replace the Johnson scandal by appealing to around 200,000 members of the ruling Conservative party. She has marketed herself as a free-market-loving heiress to controversial former leader Margaret Thatcher, but polls in recent days suggest the general public has failed to embrace her policy proposals, further weakening her position.

It all stems from his gamble to spur economic growth and fight what many experts see as a long recession, triggered by a dark winter in which some families may struggle to afford energy and food.

Beyond the corridors of Westminster and the frantic parquet floors of the City of London, the past week has left many Britons feeling deep despair about the future of the country.

“There are many millions of people across the UK who will find this winter incredibly difficult financially,” said Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, a charity focused on fighting poverty. “These people had to watch the chancellor cut taxes for those better off – it was incredibly hard to hear.”

Market reaction to Truss’ plan has pushed up government borrowing costs, likely to lead to higher inflation and interest rates which, in turn, will mean more credit cards and mortgages expensive, even threatening a subprime crisis if people can’t repay. The nose-diving pound will also make everyday goods in Britain more expensive as importers face spiraling costs.

The “mini budget” did not come with spending cuts, nor a traditional independent estimate of costs that might have allayed market fears, or even public criticism of its leader’s priorities.

The government’s argument is simple, in theory. He wants to reinvigorate Britain’s sluggish economy by any means necessary, even if it means short-term shocks.

It was left to Treasury chief Kwasi Kwarteng to drop the biggest bombshell in parliament on Friday: a tax cut for people earning more than 150,000 pounds ($160,000) a year. It would ‘make Britain more competitive’, as well as ‘reward enterprise and hard work’ and ‘encourage growth’, he told lawmakers. “It will benefit the whole economy and the whole country.”

In its defence, the government points to measures at the other end of the scale, such as cutting the lowest tax bracket and a previous commitment to freeze household energy bills until 2024, as part of a £150 billion ($162 billion) public support package that ranks among the largest in history – what McDonald of the Joseph Rowntree Foundation called “very important and very significant “.

NBC News has contacted the UK Treasury for comment.

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