The Kwarteng plan puts at risk the very poorest people in the UK – and growth
Friday, the day of Kwasi Kwarteng’s “fiscal event”, was a day for the economic and financial history books, a day of eye-popping one-day moves in UK financial assets that should be of interest to more than traders, economists and economic historians. If sustained, the depreciation of the currency and the surge in sovereign borrowing costs will have important broad-based implications for the economic outlook. And once again, it is the most vulnerable segments of the population who are most at risk.
What was a generally difficult day for global markets was also a brutal day for UK financial assets. The 2% slump in stocks was accompanied by a 3% weakening in the value of sterling against the US dollar, bringing the total depreciation this year to around 20% and to a level last seen 37 years ago. Most historic of all was the surge in yields on UK government bonds, including the largest ever single-day rise in the five-year yield.
While consistent with what was happening elsewhere in global markets – the continuing asset price adjustments to the trifecta of declining growth, tighter financial conditions, and changing economic and financial globalisation with significant geopolitical risks – the moves in UK markets were turbocharged by the specific reaction to the government’s “fiscal event”.
The more traders digested the size and shape of the “big bang” policy announcement, the more they worried about the second-round economic and financial consequences – and the faster they rushed to reflect them in market pricing, resulting not just in large but also disorderly moves.
Traders did not need to wait for the exact specification of the overall cost of the package to decide that investors, both domestic and international, would
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