n accept responsibility for the calamitous Bay of Pigs Invasion of Cuba in April 1961, John Kennedy noted, “Victory has a thousand fathers, but defeat is an orphan.”
It is often darker than that. Britain’s departure from the European Union, for example, has… reduced trade and GDPbut it is not always immediately clear where and how, not least when the departure coincided with a pandemic.
It is the clarity between cause and effect – the first being Friday’s mini-budget and the second the collapse of sterling, the rise in future interest rates and serious damage to the UK’s economic position – that is unusual and particularly dangerous for the government.
This morning, the Bank of England launched an emergency government bond buying program, with the aim of preventing borrowing costs from getting out of hand. That it felt the need to do so two days after it said no drastic action would be taken suggests a bit of panic in Threadneedle Street.
The Bank announced that it would intervene to buy bonds at a “urgent pace” following widespread fears about the government’s economic policies, which caused the pound to tumble and trigger a sell-off in the gold market.
According to Sky’s Ed Conway, the Bank’s intervention was in response to a ‘run dynamic’ on pension funds, which could have led to massive pension fund insolvencies today. Yaks.
How did we get here? Well, what has caused this crisis is not just the £45 billion in tax cuts Kwasi Kwarteng announced on Friday. Rather, it was the arrogant way the government seemed to suggest that not only was more coming, but unfunded tax cuts weren’t a problem. Think of the mood shift from earlier in the year? Financial markets also run on instinct.
The options of the prime minister and her chancellor are not great at the moment. It is clear that they need to regain their credibility with the markets. This could come in the form of a major turnaround in tax cuts, although that seems unlikely. Alternatively, they could promise massive cuts in government spending, which would be exceptionally hard to come by given the bleak state of public spaces, exacerbated by a decade of austerity and exploded by Covid-19.
And that’s before the political ramifications. This 75-seat Conservative majority belongs to Liz Truss, but was won by Boris Johnson, on a pledge to get Brexit done, improve the north of England and end austerity once and for all.
“If the dysfunction in this market were to continue or worsen, there would be a material risk to the UK’s financial stability,” the Bank said in its statement. There is no confusion about the cause of this risk. Not a new coronavirus or even a foreign despot, but His Majesty’s government.
In the commentary pages, Rohan Silva says harnessing technology is critical to: help public services cope with growing demandwhile Robbie Smith loves the major chess fraud scandal.
And finally… so they are not angry, do not stink or only in the city at night. that’s right, you’re going on a second date, the tough second album of food and drink. Where are you going? Clare Finney reveals the… Spots in London that are doing well.
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