“It looks like we’re headed for a spiral that we usually see in emerging markets crises, where policymakers struggle to reassert credibility,” Mansoor Mohi-uddin, chief economist at Bank of Singapore.
While we slept, the markets delivered their judgement on the capacity of our economy to meet the borrowing demands of the extravagant promises made in the September “mini-budget”. As it had not OBR assessment to go on, it had little to go on but the word of a Chancellor and Prime Minister whose major policy move prior to the budge was to sack their most experienced strategist, Tom Scholar, Economic Secretary to the Treasury.
Asian markets have marked the pound down to 1.035 against the dollar, 1.08 against the Euro. The Bank of England is expected to have to put up interest rates by a further 1% to prop up sterling and get a hold on inflation. That will mean businesses and individuals paying more for their money and it will mean that the margin calls on the LDI portfolios of Britain’s pension schemes ratcheting up above the £60bn already predicted by Keating and Clacher. Most alarmingly of all, it will mean that the servicing cost of all this debt we are taking on will increase exponentially.
Small wonder we are being likened to an emerging market economy – in trouble.
Nobody voted for this but Conservative members.
This is not what we voted for in 2019, it is not what the Parliamentary Conservative party voted for in the early rounds of the recent leadership election, it is what a small clique of ideologues led by an over-confident rookie have foisted on us. The markets don’t like it and we won’t like it, when we find the cost of all this gesturing is paid for in increased mortgage payments , household bills and in the cost of good and services from abroad.
But much worse than the pinch on middle Britain, will be the impact of these measures on those least able to meet their weekly bills. Pensioners who are currently “enjoying” an uprated state pension at 3.1% or their occupational pension at 2.5%, savers who are seeing the capital value of their savings eroded and contributions for 1.2m low earners, 25% higher than they should be.
Those over 50 and claiming Universal Credit who are facing draconian new rules , just to claim what they have. And while those earning over £150,000 have seen a top rate of tax wiped out, the tax thresholds for nil and basic rate tax have been frozen, meaning that the lower you are down the earnings scale, the more inflation hits your wages.
This is what is called “trickle-down economics”. What is trickling down to the low-earners isn’t clear right now.
Almost two-thirds (65%) of the gains from the personal tax cuts announced today will go to the richest fifth of households. Almost half (45%) will go to the richest 5% alone, while just 12% of the gains will go to the poorest half of households. pic.twitter.com/jz1pE7oMNB
— Resolution Foundation (@resfoundation) September 25, 2022
I am pleased to see that the twitter feeds of the conservative politicians I like and respect are not full of compliments for this grab at growth. Any self-respecting politician turning up at the Conservative Party Conference at Birmingham next month should cast his mind back 12 months when Rishi Sunak was in charge and remember a very different approach to financial management, one in line with the Conservative Party Manifesto of 2019.
This country has been misled by a Prime Minister who would not follow the rules and it is being misled again by one who makes the rules up as she goes along. We are not Turkey, or Brazil – we are a mature democracy with an economy that has been governed by fiscal rules, with an independent Bank of England, an Office of Budget Responsibility and a covenant with an electorate that in 2019 was more than 40 million strong.
More of the same to come?
The Government is letting it be known, through the Conservative press that we have more of this largesse to come
Not only is that plan not costed, it has no thought for the world we live in. The growth lobby’s answer to sustainable energy, is fracking. None of the economic growth planned for being directed at creating a sustainable environment in which to live in the second half of this century, instead we are looking to rip-up rule books which were put in place to ensure our country leads on sustainability. COP26 does not get a mention in all this broo-ha-ha on growth.
The only silver lining to this cloud is that we have but two years for the rain to fall. But it will be a hard rain.