Opinion  

Britain cannot endure another botched Budget

Simoney Kyriakou

Simoney Kyriakou

Is there really more to come from the prime minister and her chancellor?

In the space of a month the new prime minister and her government have made economic decisions that ended up shafting sterling, forcing the Bank of England to do a temporary volte-face on quantitative tightening, and attracting the attention of the International Monetary Fund.

The tax cuts so boldly promised in the election run up (and so soundly warned against by former chancellor Rishi Sunak) have not been met with the anticipated accolades and approbation.

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A nation whose small businesses, entrepreneurs and ordinary folk already combating the after-effects of the pandemic, the long tail of Brexit and exponential inflationary pressures have responded angrily to the inappropriately dubbed "mini" Budget. 

One needs only to look at social media or listen to the radio or watch the evening news. Everyone from fund managers to mortgage advisers and Uber drivers are shell-shocked. 

Mortgage advisers on Twitter right now are debating whether 2022 will turn out to be worse than the financial crisis of 2008. 

The sentiment is understandable but there are significant differences.

Back then, financial markets worldwide collapsed as packages of bad debt brought down some of the world's largest AAA-rated organisations. Central banks responded with quantitative easing, slashing rates and buying government bonds. 

Banks cut their lending rates and their savings rates. Businesses went under. The mortgage market all but collapsed.

But then, the country had not been clambering its way out of a global pandemic. The UK was still in Europe and had secure trading agreements in place. Inflation was nowhere near as high as it is now.

Austerity was imposed on the UK and we hoped we would see the end of it, and then came Brexit; then Covid; then Russia's invasion of Ukraine, which helped to push up inflation and energy prices globally.

True, the mortgage market has been resilient so far, but one adviser predicts 2022 is the start of something much, much worse: "2008 was the beginning of the end, but the crisis started in August 2007. There was still momentum as there is now." 

Economic gamble  

The plans originally outlined by Prime Minister Liz Truss as part of her "new era" of Trussonomics had been posited as a means of helping families out from the doldrums; certainly the energy pledges were a welcome measure.

Just before the "mini" Budget, Annabel Brodie-Smith, communications director of the Association of Investment Companies, said: “The package of measures the chancellor [is expected to announce] are a revolutionary step up for growth and investment in the UK economy and will benefit UK investors."

But as the details came out in the wash and economists started to price in the effects of tax cuts, markets started to wobble.