Gilts tumble as Kwarteng’s mini-budget ushers in vast additional borrowing

This week we saw Liz Truss go back to the future as she dusted off Margaret Thatcher’s policy solutions to try and fix the UK economy.

Truss and chancellor Kwasi Kwarteng have opted for huge tax cuts as their method of jolting the UK into growth and these policies come straight from Thatcher’s playbook. However, the UK is no longer a high-tax economy with a very rigid labour market. Had Thatcher been in power today, would she have applied her 1980s’ policies to an economy that looks very different and faces a host of different problems?

Markets reacted badly to the chancellor’s announcements as gilts sold off sharply on the prospect of the huge increase in government borrowing needed to pay for the tax cuts. Equities have also fallen on the back of a drop in services and manufacturing output and depressed consumer confidence. Truss and Kwarteng are gambling that their tax cuts are strong enough to power the UK’s flux capacitor and generate sufficient future economic growth to cover their short-term cost. So far the time machine has managed to push sterling back to levels last seen in the early 80s.

For the following stories, please click on this link*

  • UK– Kwarteng’s tax cuts send shock waves through markets
  • Rates – Central Banks take concerted action to tackle inflation
  • Currencies: Rising dollar causes problems around the world

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