British Revolutionary leaders Liz Truss and Kwasi Kwarteng are not intimidated by reality

Signs the British pound had stabilized and was changing its radical policy stance on Friday after a massive £65bn intervention by the UK central bank.

n a week of smashing surprises for Britain, a Reuters headline on Friday nearly stole the show.

“Sterling poised for biggest weekly rally since March 2020,” hailed a fall as strong as the wood is missing for the trees I’ve witnessed in more than two decades of financial journalism. In the end, even the forecast to recoup the week’s losses turned out to be overblown.

Sterling fell again late Friday after Britain’s Prime Minister Liz Truss and her Chancellor, Kwasi Kwarteng, met the UK Household Watch and confirmed they plan to stick with their original calendar and wait until November 23 to change despite the massive economic damage since their Mini-Budget to present new economic forecasts a week ago.

This budget – the biggest tax break in more than a generation, which had to be paid for with borrowed funds – led to an immediate collapse in market confidence in the UK government’s financial competence.

It triggered an immediate fall in the value of the pound, which triggered a collapse in the market value of UK long-dated government bonds on Tuesday this week.

This near routine was halted by the Bank of England, the UK’s central bank, which dived into the market to prop up prices

This in turn threatened to trigger a catastrophic wave of forced sales by UK pension managers scrambling to find collateral to offset declining asset values ​​by liquidating positions.

This near-routine was halted by the Bank of England, the UK’s central bank, which dived into the market to prop up prices and eventually turn around sentiment, but not before UK banks dramatically hiked mortgage rates to levels that… downward pressure on house prices will appear enormous.

Despite all that, at the close of Friday’s trading session, Truss and Kwarteng chose to unashamedly reaffirm their budget stance, refusing to bow to demands to release growth forecasts and details of the projected impact of their proposed tax cuts.

There seems little to no prospect that the latest UK government will actually reverse the pending tax cut package.

That puts further pressure on sterling and UK bonds early next week and will reinforce the impression that the new UK political leadership is made up of true believers who nonetheless want to stick to their agenda of radically shaking up the UK economy post-Brexit with short-term implications or market reactions.

The round of huge, unfunded tax cuts announced in the budget a week ago is only part of that plan, although it’s the one investors are most concerned about.

Truss and Kwarteng also plan to cut regulation, including environmental standards, as part of so-called “supply-side reforms” aimed at making the UK more attractive to foreign investment.

These plans include trying to get pension funds to invest more in UK infrastructure projects and businesses to reinvest more in their own productivity, relaxing planning rules to make house and infrastructure construction easier, and tightening immigration rules tighten after UK leaves EU union-free travel space to attract and retain skilled workers.

Any such action is likely to face opposition from outside or even within the Conservative Party, whose popularity has already collapsed.

Deregulation of the UK’s massive financial services sector is also a priority

Even more controversial is a desire to spark a revival in fossil fuel exploration, including new oil and gas production in the North Sea and ending a ban on fracking, a highly controversial method of extracting poor-quality oil and gas by pumping the ground, in which they are included.

Deregulation of Britain’s massive financial services sector is also a priority – Kwarteng promises “Big Bang 2.0” for the City of London later this month – a nod to the original Big Bang in 1986 under Margaret Thatcher, which swept away much of the longstanding financial regulations and -restrictions.

It has variously been credited with driving London’s development as Europe’s leading banking and insurance center over the next two decades, and setting the stage for what would eventually trigger the global financial crisis from 2007 onwards.

The announcement in last week’s mini-budget that the UK would remove the cap on banker bonuses that Britain, along with other EU members, brought in after the crash was a clear signal that the new government plans to promote a more permissive version of capitalism than the more controlled version acceptable in European neighbors.

Ironically, actual financial markets seem to vote with their wallets

Ironically, actual financial markets seem to vote with their wallets.

The UK’s approach to fiscal policy, moving away from so-called ‘sound money principles’, means the pound, already volatile since the 2016 Brexit vote, is becoming the world’s most volatile currency – a status normally associated with major emerging markets and currencies is closely linked to commodities such as oil or linked
metals.

Sterling’s fall, combined with soaring borrowing costs for many UK households, means that last week’s performance has already undone any stimulus Liz Truss was hoping for with her income tax cuts. stamp duty and an energy price cap.

The markets have already voted. However, the British electorate may not be able to vote on their new prime minister for years to come. According to the UK parliamentary calendar, the next general election is not due until January 2025.

For an economy that’s almost unrecognizable within a week, that’s a long time to wait and see if the bold new policies of their new leaders pay off.

https://www.independent.ie/business/britains-revolutionary-leaders-liz-truss-and-kwasi-kwarteng-refuse-to-be-cowed-by-reality-42031218.html British Revolutionary leaders Liz Truss and Kwasi Kwarteng are not intimidated by reality

Fry Electronics Team

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