LONDON — Britain’s beleaguered chancellor of the Exchequer, Kwasi Kwarteng, cut short a visit to Washington on Friday and returned home to face a political crisis amid mounting calls for the government to scrap a package of unfunded tax cuts that have rattled financial markets.
Mr. Kwarteng’s premature return to London from International Monetary Fund meetings increased speculation that a severe loss of confidence among investors that has weakened the pound and raised borrowing costs would force the government into an imminent reversal of its flagship economic policy.
But the prospect of a humiliating change of course did little to calm the atmosphere at Westminster, where the backlash against Mr. Kwarteng’s fiscal plan has reached the point that politicians are openly questioning whether he and the new prime minister, Liz Truss, can survive the political storm.
Ms. Truss has been in power for less than six weeks, but on Thursday, the foreign secretary, James Cleverly, felt compelled to warn colleagues against trying to remove her, saying that “changing the leadership would be a disastrously bad idea.”
Mr. Kwarteng’s tax-cutting announcement, made on Sept. 23, caused turmoil in the financial markets, sending the currency plunging, while increasing government borrowing costs and prompting lenders to withdraw some offers for home purchase loans.
Since then, Mr. Kwarteng and Ms. Truss have been forced to retreat from one element of their proposal, shelving plans to reduce income taxes for the highest earners, but that has so far failed to restore calm.
Britain’s central bank, the Bank of England, has intervened in the debt market, fearing that developments there could threaten some pension funds, which were particularly vulnerable. But it planned to end that intervention on Friday, adding urgency to the government’s task of restoring confidence.
As of Thursday, Downing Street said that its policy had not changed, but there was a growing expectation that the government would need to change course and increase corporate taxes. After starting the week with another sell-off, the British pound and government bonds have rallied in recent days.
Analysts have said a wider re-evaluation of the entire package could be in the cards because the failure of a second policy reversal would only deepen the crisis.
Speaking to the BBC, Mel Stride, a member of Ms. Truss’s Conservative Party who leads the House of Commons Treasury Select Committee, said he hoped “that these rumors that there will be a reset moment around the tax measures that he announced in late September are correct.”
“I think things have reached a stage now with the markets, and with confidence in those financial markets, where we need a fundamental reset,” he added.
The government has blamed global financial conditions, including the war in Ukraine, for the turmoil. Ms. Truss and Mr. Kwarteng have argued that the tax-cutting measures will spark economic growth and, they say, will be accompanied by other changes that would make construction easier and relax immigration rules to help companies hire more workers.
But skeptics doubt Parliament will support those changes, and analysts say that the Sept 23. announcement was the catalyst for a market panic that threatens to push interest rates up further than would have been necessary.
One concern among investors was that the government had ignored expert advice. Before making last month’s announcement, Mr. Kwarteng fired the top official at the Treasury and sidelined the Office for Budget Responsibility, an independent watchdog that normally scrutinizes such announcements and gives a verdict on how public finances are being managed.
The negative reaction of financial markets has acute political implications for the government because of the potential impact on home mortgage repayments for Britons whose rates are not fixed for long periods. The value of some pension funds has also dropped.
In her short time in power, Ms. Truss has presided over a collapse of support for her Conservative Party in opinion polls, with the opposition Labour Party gaining the sort of leads it last enjoyed in the 1990s.
Having only just ousted the former prime minister, Boris Johnson, Conservative lawmakers would have to change their rules to challenge Ms. Truss. Few want another protracted leadership contest, and any push to replace Ms. Truss is fraught with difficulties. A move to replace her is likely to work only if there is a consensus about who should take over, and there is no sign that Conservatives are in agreement.
One idea, originally suggested on the ConservativeHome website, was that two other contenders in the last contest — Rishi Sunak, a former chancellor of the Exchequer, and Penny Mordaunt, a senior cabinet minister — could form a joint ticket. But there is no sign yet of any such agreement, and it is not clear that all Conservative lawmakers would accept it.
Speaking on Times Radio, Ed Miliband, Labour’s climate change spokesman, described the government’s economic policy as “an absolute disaster for the country,” adding: “We’ve got a government in meltdown, we’ve got an economic policy in tatters, and this is about people’s livelihoods.”
