‘Fury at the City slickers betting against UK plc,’ shouted the Daily Mail on Tuesday, after Monday’s mayhem saw the pound hit an all-time low of $1.03. A more accurate corporate metaphor, though less punchy as headline material, would have been something like this…
Activist mavericks seize boardroom control of giant sluggish utility. Novice finance director slashes prices, raises dividends for rich shareholders, shuns in-house forecasters and says he’ll borrow whatever it costs. To which markets reply: ‘Blimey, mate, that’s bonkers. So we’re dumping your shares and the cost of your debt just doubled.’
And that, I’m afraid, is an entirely rational response, not a wickedly speculative one. Moments after Kwasi Kwarteng’s Commons performance last week, a banker I was with said, in trepidation rather than glee: ‘Interest rates will have to go above 5 per cent’ – and so they will.
The pound, as I wrote three weeks ago, has been sinking against the super-strong dollar all year; the ‘all-time low’ wasn’t just an overnight blip but more likely a new benchmark which traders will repeatedly test as borrowing projections climb and the Bank of England dithers.
The plain fact – ironic at a moment when the UK stood unusually high in global esteem thanks to the late Queen and the grandeur of her obsequies – is that the Truss government has succeeded in less than a month in demolishing what was left of international investors’ confidence in our ability, relative to competitors, to overcome an external inflation spike and climb vigorously out of the consequent recession.
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