Money

The fallout from last Friday’s mini-Budget has been bigger and more volatile than almost anyone expected, with sterling hitting an all-time low against the dollar; runaway gilt yields; a U-turn from the Bank of England on its plans to start quantitative tightening. And that was all by Wednesday lunchtime. Will things be looking up anytime soon? The pound has recovered to pre-mini-Budget levels, hovering around $1.11, a point the Prime Minister’s supporters are keen to emphasise. But the pound has always been a secondary part of this story: with soaring borrowing costs the primary indication of the market’s confidence (or lack thereof) in the government’s tax cut-and-spend strategy. The real

If you can keep your head when all about you are losing theirs and blaming it on you then, as Rudyard Kipling almost wrote, there is a strong possibility you haven’t appreciated the gravity of the situation. Or as Corporal Jones put it more pithily in Dad’s Army: ‘Don’t panic!’ It is undeniable that Liz Truss is in a bind. Her first big play following national mourning for the Queen – the ‘fiscal event’ of last Friday – has not gone well, contributing to a meltdown about UK prospects in financial markets and emergency intervention by the Bank of England. Two successive opinion polls have put Labour 17 points ahead –

Aggggghhh! Woooaaaah! Urrrggghhhh! Those screams you hear are ten thousand self-appointed financial experts howling into the existential abyss. The Bank of England this morning announced its ‘operation’ in the gilt market, and every pundit with a social media account is thrashing around in the ever greater ocean of economic jargon and incomprehensible data. It’s hard enough to remember what a gilt is: now we are all expected to comment knowingly on how gilt yields operate, how government interventions shape the bond market, and how markets will react. ‘It’s unprecedented. Then again, we are living in an age when the unprecedented is the precedent’ Seasoned bluffers need not be afraid, however.

Tonight the International Monetary Fund has weighed in on the UK’s mini-Budget, offering a direct rebuke of Liz Truss and Kwasi Kwarteng’s tax cuts. ‘We are closely monitoring recent economic developments in the UK and are engaged with the authorities,’ its spokesperson said, in reference to the fluctuating pound and rising borrowing costs. ‘Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture’ – suggesting some concern that the measures could be inflationary. The IMF seems more frustrated with the ethics of the policies rather than their economic impact It’s the kind of intervention that does little to

It has dawned on the government that last week’s mini-Budget might have been a bit too one-sided: £70 billion worth of extra borrowing and not a single mention of spending cuts or efficiency gains has seen borrowing costs spike (up by 0.3 per cent just today). As James Forsyth reports on Coffee House, this afternoon’s announcement that a ‘medium term fiscal plan’ will be announced next month is an attempt by the Treasury to reassure markets – and convince them that fiscal responsibility has not totally disappeared from this government’s agenda. Emphasis is being placed on previous promises to make sure debt falls as a percentage of GDP in the

New Chancellor Kwasi Kwarteng’s first ‘fiscal event’ was always going to be quite provocative and exciting. But in the end it went quite a lot further than expected. Far from pulling back when faced with the practicalities of being in office, Truss’s new administration did everything it had signalled, controversial or not, then threw in some even more controversial policies just for good measure. The centrepiece is the huge energy price package. The government estimates that this will cost £60 billion over the first six months. But since the policy involves capping wholesale prices and government subsidies to make up the difference, that £60 billion estimate is entirely subject to

How are markets responding to Kwasi Kwarteng’s mini-Budget? A sharp fall in the pound today has plenty of critics arguing that the tax-slashing announcements have already proved a failure. Sterling fell this afternoon to $1.09, bringing the currency to another 37-year low against the dollar. This is more than a 3 per cent dip in just one day. The euro took a hit too, but a smaller one at 1.5 per cent. It’s difficult to separate this new record low from today’s announcements – but also near impossible to draw direct correlation, as the pound and euro have both been in freefall against the dollar for weeks now. With the

Rising interest rates is a key pillar of Trussonomics. Liz Truss herself has always stopped short of saying this explicitly, pointing fingers instead at the Bank of England for its failure to curb spiralling inflation. But the economists advising her have made clear, in no uncertain terms, that they think interest rates have been too low for too long.  Right from the start of her leadership campaign, Truss was far more vocal about her criticisms of the Bank; a point made even clearer once she entered No. 10 and her Chancellor Kwasi Kwarteng set up bi-weekly meetings with the Bank’s governor Andrew Bailey. With this new pressure being applied on the