The new Government is clearly in an almighty mess, but I’ll leave the political commentary to others. Here are some thoughts on the economics and the markets.
Let’s start by summarising what went wrong. The tipping point was the mini-Budget in September. The mistake here was not the Energy Price Guarantee, or the cancellation of the increases in National Insurance and Corporation Tax. After all, these measures had already been discounted by the markets. It was not even the absence of the usual OBR analysis. That omission was not a surprise, either.
Instead, investors were spooked by the unexpected announcements of the additional cuts in income taxes, and by Kwasi Kwarteng’s apparent doubling down on tax cuts on Sunday, despite the markets’ obvious and growing concerns about fiscal credibility.
It is just about conceivable that this storm could have passed. Many independent economic commentators initially welcomed the broad thrust of…
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