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Truss plan to ‘turbo-charge’ UK economy alarms markets

Liz Truss is set to become UK prime minister this week with her plan to “turbo-charge” the economy by slashing taxes already worrying investors amid double-digit inflation.

The foreign secretary is the front-runner to replace Boris Johnson, and Conservative Party members are expected to name her as their leader on Monday.

She would take office after declaring a willingness to run up the budget deficit just as the Bank of England is raising interest rates and selling its own holdings of government bonds. She also has indicated she will review the central bank’s mandate.

Markets have already signaled concern about a Truss premiership as bond traders fret that a flood of gilts may be too much to absorb, triggering higher debt-servicing costs.

Since July 7 when Johnson decided to step aside, borrowing costs on 10-year government bonds have risen faster than those of any of the other 22 major bond markets. The pound has also trailed 132 of the world’s 150 top currencies.

“We have a number of concerns about the dependence on the kindness of strangers to fund the UK when the public finances are likely to deteriorate materially,” said Mark Capleton, strategist at Bank of America Corp.

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