A falling exchange rate and rising bond yields are the typical characteristics of a financial crisis in an emerging market. Those who never forgave the UK for its decision to leave the EU like to remind us of this fact right now. But an emerging market crisis doesn’t even begin to capture what is going on.
This is a macro financial crisis story; EU membership is not the issue here. The UK had its independent macro policies when it was still in the EU. What is happening in the UK, and worldwide, is the realisation that fiscal and monetary policies have run out of our control. You can’t have 4-5 per cent core inflation, 2 per cent interest rates, and an expansionary fiscal policy at the same time. Markets are now pricing in UK base interest rates at 6 per cent next year; a significantly higher level of interest is coming to a central bank near you.
Many families will struggle with mortgage payments, a financial shock that is comparatively larger for them than the electricity price shock
Broad macro crises always start somewhere.
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