Home » Britain’s Crisis Highlights Years of Anxiety – From Brexit to Big Tax Cuts – Bloomberg

Britain’s Crisis Highlights Years of Anxiety – From Brexit to Big Tax Cuts – Bloomberg

by archyde

Britain is in the midst of a self-inflicted financial crisis that could accelerate its plunge into recession. And Prime Minister Truss is facing intense pressure to revisit the big tax cuts that triggered the crisis.

The pound hits a record low against the dollar, showing the cost of guaranteeing British bonds, after the British government laid out its biggest tax cut since 1972 over the weekend, but gave few details on its financing. Credit default swap (CDS) spreads rose to their highest level since 2016. Concerns about the impact on pension funds also arose, forcing the Bank of England to intervene in the government bond market.

Future developments will likely determine how deep a recession the UK economy can slip into, and whether the Truss administration, which took office just over three weeks ago, can restore investor confidence. hold the big key.

Gloomy September

The value of UK assets has tumbled since Liz Truss became prime minister

Source: Bloomberg

With the Bank of England unable to control the first price rise in nearly 40 years, the supplementary budget announced on the 23rd has sparked investors’ short-term concerns over unfunded tax cuts. Not only It reiterated longstanding anxieties about the UK, including its current account deficit, difficult relationships with major trading partners such as the European Union, and especially distrust of the pledges of past political leaders.

Peter Kinsella, global head of FX strategy at Union Banker Prive (UBP) in London, said: “This is the latest in a series of decisions that have laid bare their own economic ignorance, starting with Brexit. example.”

The Bank of England was forced to act to prevent a crash in the bond market, mobilizing the kind of policy tools Prime Minister Truss has criticized in recent months. He promised unlimited purchases of long-term government bonds needed to restore order in the market. Long-term government bonds rallied in response to this, but increased two risks. The risk is that the Bank of England will be forced to raise interest rates further in the coming weeks, and investors will be wary of the central bank’s move to cover the government’s budget deficit.

BOE Action

Long-dated yields posted a record fall after the central bank intervened

Source: Bloomberg

Callum Pickering, senior economist at Berenberg, sees the Bank of England’s latest action as buying immediate “credibility time” for the government.

How the UK government uses that time will be crucial. Bank leaders in London’s City financial district appealed to Chancellor Kwartengu to reassure the market before announcing details of the financial plan due on 23 November. Prime Minister Truss, who has not been seen in public since 23rd of this month, is preparing to address a Conservative Party conference next week for the first time since he took office.

Relates to Britain's Crisis, Highlighting Years of Anxiety - From Brexit to Big Tax Cuts

UK Chancellor of the Exchequer Quarteng (center)

Photographer: Jessica Taylor/UK Parliament

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