UK fiscal policy triggers panic in the market

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Xinhua News Agency, London, October 6th.(International Observation) The UK’s fiscal policy has caused market panic, and the uncertainty of the economic outlook has increased sharply

Xinhua News Agency reporter Yang Hairuo

British Chancellor of the Exchequer Quasi Kwarten recently announced the country’s largest tax cut in 50 years to boost the economy, but it triggered a turbulent financial market: the pound against the dollar once hit a record low, British government bonds were sold, pensions Gold Fund Faces Liquidity Crisis…

Although the Bank of England and the government subsequently announced remedial measures to temporarily stabilize market sentiment, many questions remain, and uncertainty about the UK economic outlook has increased sharply.

Analysts attributed the market volatility to investor fears over the prospect of a surge in government borrowing. Sanjay Raja, chief UK economist at Deutsche Bank, said: “The tax cuts at Kwarten are adding to inflationary pressures over the medium term and raising the risk of a near-term fiscal crisis, making it difficult for markets to appreciate an economy that already has huge debts. body full of confidence.”

Since the new crown epidemic, the scale of British government debt has risen sharply. According to data from the Office for National Statistics, as of the end of the first quarter of 2022, the UK’s total government debt was 2,365.4 billion pounds (about 2,710.512 billion U.S. dollars), equivalent to 99.6% of its gross domestic product. The tax cuts announced by Kwarten amounted to a tax exemption of up to 45 billion pounds (about 51.565 billion U.S. dollars), which will have a serious impact on the British public finances.

In addition, some analysts believe that the British government’s new fiscal policy has not achieved the desired effect. Gaurav Ganguly, senior director of economic research at Moody’s Analytics, said the government’s “recent actions have made stagflation and a deep recession all but inevitable”.

Public opinion believes that the turmoil exposed the collision between political ideas and financial markets. David Gauck, former justice secretary, said: “There has been a very strong belief within UK political parties for a long time that the benefits of lower taxes and less regulation are huge. Now the market has chosen not to believe that belief.”

The original intention of the British government to release the tax cut policy is to promote economic growth, but the loose fiscal policy released at this time is undoubtedly contrary to the tight monetary policy of the Bank of England trying to curb inflation. Like driving a car, the chancellor’s foot is on the gas and the central banker’s foot is on the brakes, which is not a good way to boost Britain’s economy, said Mohammad Elrian, dean of Queens College, Cambridge.

Market bodies predict that a weaker pound could fuel inflation in the U.K., as more expensive imports could lead to higher prices for U.K. goods. From April to July this year, the UK inflation rate hit a record high in 40 years. In response to high inflation, the Bank of England has raised interest rates seven times since December last year.

Responsible editor: Li Yuan