On Monday, October 17, the bullying of Trussonomics guests ended. New finance minister J. Hunt carried out a further destabilization of his predecessor’s tax breaks K. Kvarteng. After that, her political world England intelligently wonders if it makes sense to remain prime minister n Liz Truss. The Times of London “conducted” a poll during the day in which 92% of readers agree with the destabilization of the policies of the current prime minister.
In addition, I note that there has been a significant de-escalation in the cost of UK long-term borrowing since Hunt’s latest financial setback. The cost of borrowing has declined to 4.35% over a 30-year horizon. However, it still remains half a percentage point higher than the cost of borrowing in Britain compared to the freeze on September 23, when the previous Treasury Secretary Kwarteng decided to announce big tax breaks (accompanied by rampant external borrowing). In other words, half a percentage point is the premium that international investors are currently “demanding” in order to put their capital into the British economy. It is understood that this surcharge will remain active until the next national elections, which are (for now) scheduled for 2024. And this is because investors, due to the external and unpredictable British economic policy, are understandably especially concerned about the quality of government performance in the country.
At the time of this analysis, it is unknown how many days (or weeks) Thras will “last” as prime minister. Conservative MPs have (at least) two options. First, replace her with someone experienced in finance, such as former finance minister Rishi Sunak (who came first in MPs’ preference but lost the prime ministership because members of the Conservative Party preferred Truss). The second option is to spin the J. Hand, which the markets seem to trust.
The lesson for everyone else is that you can’t pursue unorthodox economic policies based on endless borrowing and hoping the markets will give you “forgiveness.” Nor did they ask Alexis Tsipras, who naively declared in late 2014 that “we will play the game and the markets will dance.”
* Mr Costas Milas is Professor of Finance at the University of Liverpool.
Source: Kathimerini
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