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US officials concerned about controversial UK tax cut plan | CNN Business

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US officials are increasingly concerned about a UK proposal to slash taxes at a time of crushing inflation, a plan that has sent financial markets into turmoil.

UK Prime Minister Liz Truss’ tax cut plan drew 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 risk for the United States is that any problems across the Atlantic spill over into the world financial system and the world economy.

US Commerce Secretary Gina Raimondo criticized Truss’s plan on Wednesday, noting that sterling has tumbled since the proposal was unveiled.

“The policy of cutting taxes and at the same time increasing spending is not going to fight inflation in the short term or promote economic growth in the long term,” Raimondo said in response to a question at an event. by The Hamilton Project at the Brookings Institution.

Raimondo sought to contrast the UK approach with that of the Biden administration.

“We’re following a different strategy… We’re taking inflation seriously, letting the Federal Reserve do its job, looking at deficit spending,” he said. “Investors and businesspeople want world leaders to take inflation very seriously. And it’s hard to see that outside of this new government.”

Biden officials have aired their concerns about the UK plan through the International Monetary Fund, according to Bloomberg News, which previously reported on the US officials’ concerns.

The United States is the largest shareholder in the IMF, which this week issued a rare criticism of the UK plan and urged UK officials to “re-evaluate” the tax cuts.

“Given elevated inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this time, as it is important that fiscal policy does not work at opposite ends to monetary policy,” a spokesman said. from the IMF earlier this month. week.

Truss defended her tax plan, telling CNN’s Jake Tapper last week that her administration is encouraging businesses to invest and helping ordinary people with their taxes.

Some US officials have been careful not to directly criticize their UK counterparts.

US Treasury Secretary Janet Yellen on Tuesday declined to comment directly on the UK economic plan, although she noted that the UK is dealing with “significant inflation problems” as is the US.

Asked if she was worried about disorderly markets, Yellen said “the markets are doing well” and she hasn’t seen any liquidity issues emerge.

However, the big swings in the bond and currency markets raise questions about how well the markets are performing.

A day after Yellen’s comments, the Bank of England announced an emergency intervention. The central bank promised to buy UK government debt “on whatever scale is necessary” to prevent a bond market crash and ease “dysfunction” in financial markets.

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