The dangerous charge for the government – and the one that should alarm backbench Tory MPs as they watched sterling swoon – is the basic one about competence. Are Liz Truss and Kwasi Kwarteng capable of getting their “new era” for the UK economy off the launchpad? Do they understand that, when you’re running a large current account deficit and need to borrow the thick end of £200bn next year, financial markets matter?
The prime minister and chancellor might have expected a bumpy reception, but what they got was an open revolt in markets and some extraordinary comments from grown-up economists at serious firms. “Hope is not a strategy,” said Nomura’s team, predicting parity for the pound against the dollar by year end. “Investors seem inclined to regard the UK Conservative party as a doomsday cult,” said Paul Donovan at UBS Global Wealth Management.
While Monday morning’s record low against the dollar grabbed the headlines, sterling has also fallen about 8% on a trade-weighted basis in two months. That is a chunky move, but one dwarfed by what’s happened with gilts. It cost the government 1.9% to borrow for 10 years in early August; that rate was 3.1% a week ago and is now 4.1% as the market tries to work out how far the Bank of England will have to raise interest rates. Virtually nobody accepts the notion that the biggest tax cuts since 1972 can be anything other than inflationary.
Fans of Trussonomics can argue all they like that tighter monetary policy is part of the grand design, but the short-term effect of these violent market movements is that two key giveaways in Friday’s mini-budget – the cut to 19p in the basic rate of income tax and the reduction in stamp duty – will be swamped by higher-for-longer inflation and
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