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British Pound, Bonds Roiled as Tax-Cut Plans Spook Investors
| The pound’s fall followed a tumble of 3% on Friday, after the government announced a series of tax cuts for businesses and individuals. That marked the currency’s biggest one-day decline since the beginning of the pandemic in 2020 and its second-biggest fall since the 2016 vote to leave the European Union.
The price of U.K. government debt also fell sharply again Monday, pushing yields up. The 10-year government bond was yielding 4.11%, up 28 basis points.
| The market turbulence is shaping up as a major challenge for new U.K. Prime Minister Liz Truss, whose government has taken a sharp U-turn on economic policy compared with previous Conservative governments by unveiling plans aimed at kick-starting growth through both higher spending and tax cuts rather than focusing on financial stability.
| The tax cuts will hit government revenue at a time when the government has also unveiled massive subsidies to consumers and businesses over the next two years to shield them from the worst of far higher energy prices due to the war in Ukraine. Taken together, the size of the plan spooked markets at a time when inflation is already running high and the Bank of England has been raising interest rates quickly.
| On Monday, the government suggested it wouldn’t heed some calls to drop some its biggest planned tax cuts, including a decline in the top tax rate for Britain’s highest earners to 40% from 45%.
“I’m always calm,” U.K. Chancellor of the Exchequer Kwasi Kwarteng said Monday. “Markets move all the time. It’s very important to keep calm and focus on the longer term strategy.”
| If the pound continues to fall alongside the price of U.K. government debt, then the government’s plans to spur growth could get derailed, especially if the moves prompt the central bank to carry out an emergency interest-rate increase to try to stabilize the currency or carry out a more aggressive rise during its next planned meeting in November.
| If the government doesn’t backtrack on some of its plans, then the central bank should raise rates aggressively by a full percentage point to 3.25% at its next meeting, according to Mohamed El-Erian, chief economic adviser at Allianz and president of Queens College, Cambridge.
| If the U.K. government doesn’t backtrack, it will find itself at odds with the central bank, pulling in opposite directions as the government spends more money and the bank makes borrowing money more expensive, he told the British Broadcasting Corp.
https://www.wsj.com/articles/british-pound-bonds-roiled-as-tax-cut-plans-spook-investors-11664192138
| :siren: THE POUND IS FUCKING DEAD :siren:
ANOTHER NEOLIBERAL SHITHOLE BITES THE DUST G/U/RLS
REV UP THE IMF BAILOUTS, GONNA NEED THEM SOON ENOUGH!
| Bonus content:
"The UK’s five-year bond yields are now above those of *Italy and Greece*."
https://twitter.com/georgeeaton/status/1574381374525652993
| Tax cuts + higher spending
Lmao
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| LONDON—The selloff in U.K. financial markets accelerated on investors’ worries that the country’s largest tax cuts in decades would spark higher inflation and put government finances at risk.
The British pound briefly sank to its lowest-ever level against the U.S. dollar Monday, before paring losses. The currency touched $1.0349 during Asian trading hours, breaking through its previous record low of 1985. It then recovered to just under $1.08, down slightly less than 1%.