Kwasi Kwarteng returns early from IMF as markets price in more U-turns – business live

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Kwasi Kwarteng has cut short his trip to the International Monetary Fund’s autumn meeting in Washington, flying home early as the political crisis over his tax-cutting mini-budget intensifies.

Adding to signs that the government is preparing to announce a U-turn over its plan to scrap a rise in corporation tax, the chancellor left the US capital a day earlier than planned. He spent two days there, and was publicly dressed down by Janet Yellen, the US Treasury secretary, at a meeting of G7 finance ministers and central bank governors, who warned that tax cuts that required extra borrowing posed a risk to financial stability. The IMF said yesterday it would welcome changes to the mini-budget.

Related: Kwasi Kwarteng dashes home early from US amid tax U-turn chaos

Kwarteng’s unscheduled departure on a late-night flight from Washington capped another febrile day in Westminster and prompted comparisons with the sterling crisis suffered by the Labour government in 1976. Then, the chancellor Denis Healey turned around at Heathrow rather than fly out to an IMF meeting in Manila after pressure mounted on the pound.

UK government bonds rallied yesterday, and the pound surged on reports that the government will execute further U-turns on its recent mini-budget, a package of unfunded tax measures that triggered market turmoil.

This morning, sterling has slipped 0.1% to $1.1315, but is hovering near a one-week high against the dollar.

Michael Hewson, chief market analyst at CMC Markets UK, says:

While 10 Downing Street has denied such a U-turn will happen, markets seem to think that the chancellor won’t have a choice, and his early departure from the IMF meetings in Washington appears to suggest that something is afoot.

There is also an expectation that whatever the Bank of England and governor Andrew Bailey says about ending the support for the gilt market today, if we get further turbulence next week, they will have little choice but to step in and provide liquidity to the market.

The rebound in the pound was also helped by a sell-off in the US dollar, on an expectation that we could well see more aggressive hikes from the ECB and the Bank of England in response to a more aggressive Federal Reserve.

The Bank of England’s emergency bond-buying programme, announced on 28 September to calm nerves and prevent a run on pension funds, ends today.

Related: Will Bank of England have to step in again to mop up market mess?

Wall Street staged an impressive comeback yesterday after early heavy losses as investors shrugged off hotter-than-expected inflation data, and UK and European shares also closed higher.

In Asia, stock markets have rallied on hopes of more Chinese stimulus and speculation about more U-turns on the UK’s fiscal plans. Japan’s Nikkei rose 3.5%, Hong Kong’s Hang Seng has gained 2.7% and the Shanghai composite is up 1.8%. European shares are also expected to open higher.

The Agenda