Background
Gone are the days when sterling was worth something, the symbol of a prosperous nation.
After World War 2, £1 could buy just over $4. In 1949 it was devalued from $4.03 by 30% to $2.80, a rate which stood until November 1967.
I recall the time well, it being early in my first year as an economics undergraduate and the Labour Government devalued the currency by 15% to £2.40. Weeks later and in the face of righteous indignation from Conservative leaders, the Chancellor of the Exchequer resigned in ignominy. To complicate matters, the U.K's application to join the EEC was blocked.
The Here and Now
Fast forward to 2022 and the worsening impact of Russia's invasion of Ukraine on energy prices everywhere. This growing crisis had to queue for attention because of domestic hiatuses to accomodate the tortuous process of electing a new Prime Minister and the mourning of the revered Queen Elizabeth II. Eventually the Government acted with an emphatic pledge to pursue "faster economic growth." Its implementation has, however, seen sterling slide precipitously on international markets.
The new Chancellor's "mini-budget" for a "new era" was quickly followed by a 3% slump in sterling's value to a 37 year low of $1.09, falling a further 6 cents closer to parity with the dollar.
How could this unthinkable scenario be happening? Given the facts of 12 years in power by the avowedly business-friendly Conservatives and ample time since signing the Withdrawal Agreement to demonstrate that Brexit would allow the U.K. the sovereign independence to "take back control," the question arises where did it and where is it all going wrong?
What about the funding needs of the National Health Service; what about the needs of the many other public services across the U.K. which steered the nation through the pandemic; how will the Government deliver on its election pledge to "level up" the north with the south of England; what about defense spending and the war in Ukraine; how will the U.K. afford to tackle the climate emergency and repair broken infrastructure; what about the U.K's international responsibilities, its place in the world and the combined impacts of recession and inflation on its neighbours (1); and where sits prudence and fiscal responsibility?
The Chancellor explained himself on Friday 23 September thus. It is, he said, "a plan to solve the riddle of growth.(2)" It is based on an estimated budget deficit (borrowing on a scale to make eyes water) of £200 billion per year. Its twin pillars are £45 billion of tax cuts (with the promise or threat of more to come); and £60 billion of spending to cap energy prices as inflation grips.
One commentator (3) observes that the cost of 10-year borrowing for the U.K. government exceeds 4% with markets betting that Bank of England interest rates could rise above 6% by next spring compared to 2.25% now. He adds that investors fear that Britain's national debt could be on an unsustainable path as government borrowing soars, with the outlook dimmed by a large deficit on the balance of payments.
Remember that in selecting its new PM, the Conservative Party rejected a candidate who had warned against tax cuts as being inflationary. In so acting they provided a party mandate for the new radical (and reckless) policy. Is one speechless? What did we do to deserve this treatment?
If prose and satirical imagery fail to emphasise the message, exasperation prompts resort to the abstract - alliterative verse (4).
Tracking the Descent
There is no Magic Money Tree
No Maidenhead MP/PM Magic Money Tree
Theresa May modernizer's mantra.
Meaningful meandering with votes
"Weak and wobbly."
Johnson Jouster journalist, fired for fabrication
Brexit 31 January 2020. Deal done?
Unilateral law, abandon Protocol (5).
"Failures of leadership" Partygate scandal
Excessive boozing. Gray day.
Sexual scandal, support sinks, "resignation in disgrace"
Alexander Boris de Pfeffel piffle.
Truss, noun, support framework for a roof
Example Kwasi Kwarteng Chancellor on the hoof
Sterling slides, interest rates rise
Quesy Kwarteng quantitative easing
Public support? Not courted by Liz and Kwasi
They must've found that magic money tree.
©Michael McSorley 2022
References:-
1. BBC News 28 September 2022 IMF openly criticises UK govt tax plans https://www.blogger.com/blog/post/edit/5930599165673754705/1608992424988987206
2. The Times 24 September 2022 "Top earners the big winners as Truss reverses Tory strategy" Oliver Qright, Chris Smyth, Geraldine Scott
3. Irish Times 26 September 2022 "UK mini-budget drama is threatening to turn into a crisis" Cliff Taylor
4. Acknowledgement Britannica biographies (May & Johnson)
5. NIESR "Summer Economic Outlook - A Risky Present" 3 August 2022
