Brexit and the waning days of the United Kingdom

[Tamas]

en

The fall in the markets has already cost my household two years worth of the future tax reductions...in a few minutes 

And my Lloyds shares were improving for a couple of days, too. I probably should just sell them and exchange those pennies to Swiss Frank or something

Would that be sensible?
Looking at exchange rates we have to be near a bottom. Or else 

The Swiss have just abandoned negative interest rates and hiked 0.75% so bigger than the UK did. Even if the pound stopped tanking, if the CHF starts strengthening it would be a good trade. Well, assuming that you'll have any profit left after converting to CHF and then back, that is

[Tamas]

Former US Treasury Secretary Lawrence Summers has blasted the economic policies being adopted by Liz Truss, and warned that the pound could tumble below parity against the US dollar.

Summers gave a blistering condemnation of the UK government, speaking on Bloomberg Television's "Wall Street Week" with David Westin.

"It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market.

"Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursuing the worst macroeconomic policies of any major country in a long time."

Summers, who was Secretary of the US Treasury from 1999 to 2001, said he wouldn't be surprised if the pound eventually gets below a dollar, if the current path is maintained.

He added:

This is simply not a moment for the kind of naïve, wishful thinking, supply-side economics that is being pursued in Britain."

[Tamas]

I am surprised to see several analysts/opinion people say this mini-budget is the first thing to really "make use of Brexit". Do the simply mean that EU deficit rules would not have allowed this or is there some other sinister EU plot preventing member states from adjusting taxes?

[Tamas]

Paul Krugman's take:

What's really amazing is that surging interest rates have been accompanied by a *plunge* in the pound. This is not supposed to happen in advanced countries: we expect deficit spending to drive up interest rates and make the currency *rise*, which is what happened under Reagan

But Britain is now trading like a developing country, where perceived fiscal irresponsibility is undermining confidence in the value of its currency. It's actually kind of awesome

[mongers]

Paul Krugman's take:

What's really amazing is that surging interest rates have been accompanied by a *plunge* in the pound. This is not supposed to happen in advanced countries: we expect deficit spending to drive up interest rates and make the currency *rise*, which is what happened under Reagan

But Britain is now trading like a developing country, where perceived fiscal irresponsibility is undermining confidence in the value of its currency. It's actually kind of awesome

Tamas, have you yet admitted to yourself that you probably choose the wrong country?

[Tamas]

Paul Krugman's take:

What's really amazing is that surging interest rates have been accompanied by a *plunge* in the pound. This is not supposed to happen in advanced countries: we expect deficit spending to drive up interest rates and make the currency *rise*, which is what happened under Reagan

But Britain is now trading like a developing country, where perceived fiscal irresponsibility is undermining confidence in the value of its currency. It's actually kind of awesome

Tamas, have you yet admitted to yourself that you probably choose the wrong country?

Compared to Hungary? Are you kidding? 

[alfred russel]

Pro-business approach is much appreciated by the market:

The plan is so bad that US markets are down even more than UK markets.

[Sheilbh]

Yeah I think the plans are bad - but I don't think UK fiscal policy has any impact on the Dow

[Richard Hakluyt]

Another step forward on the Tory Venezuela emulation project 

[Tamas]

It is true that it's a bad day for markets regardless, but I would argue it contributes to the strength of the dollar today (both EU and now UK are looking to spend their way out of inflation-induced troubles), which DOES have negative correlation with US markets.

It is not the cause but it is contributing.

[Josquius]

Compared to Hungary? Are you kidding? 

Youve the whole EU to choose from.

And hey. Maybe Hungary could be a better choice than the UK if we are going for where to pick if born 18 years ago. Hungarians have that option.

[alfred russel]

the dollar has conquered the euro and now parity with the pound is in sight. biden bucks uber alles.

[Sheilbh]

It is true that it's a bad day for markets regardless, but I would argue it contributes to the strength of the dollar today (both EU and now UK are looking to spend their way out of inflation-induced troubles), which DOES have negative correlation with US markets.

It is not the cause but it is contributing.

I think a tiny amount. I don't think the UK matters. For US markets and the dollar markets I don't think the UK is even a contributing factor.

I've finally seen some people flagging positive points, or defending it and some theories of the budget (one of which would be really interesting if true). I'm still not wildly convinced.

[Tamas]

It is true that it's a bad day for markets regardless, but I would argue it contributes to the strength of the dollar today (both EU and now UK are looking to spend their way out of inflation-induced troubles), which DOES have negative correlation with US markets.

It is not the cause but it is contributing.

I think a tiny amount. I don't think the UK matters. For US markets and the dollar markets I don't think the UK is even a contributing factor.

I've finally seen some people flagging positive points, or defending it and some theories of the budget (one of which would be really interesting if true). I'm still not wildly convinced.

What's the supposed positive? If economic growth can be triggered by it, why does the market disapproves? Again, sure, the global down day wasn't triggered by it, but its not coincidence either that the UK stock market and the pound had a terrible day after this package got announced.

[Sheilbh]

What's the supposed positive? If economic growth can be triggered by it, why does the market disapproves? Again, sure, the global down day wasn't triggered by it, but its not coincidence either that the UK stock market and the pound had a terrible day after this package got announced.

Recognising there's a bit growth issue and that growth is the reason the last 15 years have been catastrophically bad - our model blew up with the financial crisis:


The energy price cap is significant and will save households about £1,000 this winter. I think that was basically unavoidable and whoever was in office would have to do it. But the business energy cap is more of a choice and details are still being worked out but it's also huge. I think it is slightly mad looking at the size of some of these tax cuts (or cancelling planned tax rises that haven't yet been implemented) because they are pretty insignificant v £60 billion on energy for the next six months - which is, in my view, unavoidable borrowing.

There was a focus on infrastructure and a promise of an infrastructure bill this autumn (this is linked to the positive theory of the bill). We'll see what that looks like but the budget included a reference to changing the consent for onshore wind so it's in line with other infrastructure - at the minute onshore wind has a higher, more difficult standard. That is good on wind, but we'll see on the rest of the infrastructure stuff.

Also they've budgeted for a few billion for domestic energy efficiency subsidies, plus support for local authorities, schools, housing associations, hospitals etc to invest in energy efficiency and renewables. Again that's good and something we should have been doing for years.

Stamp duty is a bad tax so cutting it is generally good but ideally it'd be part of a wider property tax reform (also covering council tax) but that'll never happen.

Finally - again linked to the theory - several references to legislation that'll be proposed this autumn which seem fairly focused: financial services, planning etc. With financial services I think it is essential we stop being ashamed of a really important industry where the UK does well and it'd be good to see some focus on that (I'm not sure banker bonus cap is enough - but it might be a signal); with planning, you know my views

Edit: Going to be interesting to see how the BofE handles this, incidentally. I think it's the first time since their independence in 1997 when they've really had to play a "bad cop" role.