Sterling and British bonds have fallen in value since Friday, when Finance Minister Kwasi Quarting outlined his plans to boost economic growth, forcing the Bank of England to point to a “significant” rise in interest rates ahead.
Mid-morning Wednesday in London, The pound fell 0.4% to $1.0688, the 30-year government bond yield was above 5% and reached a 20-year high, and fixed-income strategists warned that markets are close to trading impossibility due to volatility.
Raymond Thomas Dalio, chief investment officer at the world’s largest hedge fund, Bridgewater Associates, said he does not believe the mistakes made by the new prime minister’s government, Liz Truss.
“The panic selling we are seeing now which is driving down UK bonds, currency and financial assets is due to the recognition that the large supply of debt that the government will have to sell is too much to bear.” He said on Twitter.
Julian Jessup, an economist who informally advised Truss during his election campaign, said the economy is at risk of a “disastrous downward spiral.”
The latest crisis in the British state was caused by Kwarteng’s plans to implement deep tax cuts and deregulation to pull the economy out of a long period of stagnation, which is seen as a return to the Thatcher and Reagan doctrines. from the eighties.
The International Monetary Fund said the proposals, which took the pound to a record low of $1.0327 on Monday, will add to a crisis of credibility after the government cut taxes and increased borrowing while the Bank of England raised interest rates to deal with rising inflation.
An IMF spokesperson said: “Given the rising inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this point, as it is important that fiscal policy does not work against monetary policy.”
The IMF has symbolic importance in British politics: its bailout in 1976, in the wake of the balance of payments crisis, led to massive spending cuts, and it has long been seen as a humiliating low point in the UK’s recent economic history.
Reassess the measures
In a strong statement, Moody’s said large unfunded tax cuts were “credit negative” for the UK, with the risk of a structural rise in financing costs that could weaken the economy.
The new bout of uncertainty will force companies to stop investing, said Stuart Rose, a veteran business expert who has managed many of the country’s largest retailers.
“You won’t stimulate things today,” He told BBC Radio, adding that companies would wait to see what happens next. “Especially in the capital markets, when debt prices are going up and the availability of debt is really scarce.”
Moody’s.jpg
Kwarteng, an economic historian who served as finance minister for two years, responded to the criticism by insisting that tax cuts for the wealthy, along with subsidizing energy prices, are the only way to revive economic growth.
The International Monetary Fund said its November 23 fiscal plan would provide an “early opportunity for the UK government to consider ways to provide more targeted support and to reassess fiscal measures, particularly those that benefit higher incomes”.
Britain’s Treasury said the November announcement would detail the government’s plans to reduce debt over the medium term.
On Tuesday, the Bank of England’s chief economist, Howe Bell, said the central bank was likely to make a “significant” rate hike when it meets in November, adding that turmoil in financial markets will have and will have a major impact on the economy. Calculate his future expectations.
It is hard not to conclude that this would require a significant monetary policy response. Bill said at CEPR’s Barclays Monetary Policy Forum.
