Xinhua News Agency London, October 6 (Reporter Yang Hairuo) British Chancellor Kwasi Kwaten recently announced the country's largest tax cut in 50 years to boost the economy, but triggered a sharp fluctuation in the financial market: the pound exchange rate against the US dollar once hit a record low, British government bonds were sold, and pension funds were facing a liquidity crisis...
Although the Bank of England and the government subsequently announced remedial measures to temporarily stabilize market sentiment, many problems remained, and the uncertainty of the UK's economic outlook increased sharply.
analysts believe that the reason for market volatility is that investors are afraid of the prospect of a surge in government lending. Deutsche Bank UK chief economist Sanjay Raja said: "Kwoten's tax cuts are increasing medium-term inflation pressure and increasing the risk of recent fiscal crisis, which makes it difficult for the market to be confident in an economy that already has huge debts."
The scale of UK government debt has risen sharply since the COVID-19 pandemic. Data from the UK's National Office for Statistics shows that as of the end of the first quarter of 2022, the total amount of UK government debt was 236.54 billion pounds (about 2710.512 billion US dollars), equivalent to 99.6% of its GDP . The tax cuts announced by Kwoten are equivalent to exempting taxes of up to £45 billion (about $51.565 billion), which will have a serious impact on UK public finances.
On March 18, a woman showed her home energy bill in Manchester, England. (Xinhua News Agency, photo by Jon Hugper)
In addition, some analysts believe that the new fiscal policy of the UK government cannot achieve the expected results. Gorav Ganguly, senior director of economic research at Moody's Analytics, said the government "recent actions have made stagflation and deep recession almost inevitable."
Public opinion believes that this storm exposed the collision between political ideas and financial markets. Former British Justice Secretary David Gauke said: "For a long time, there has been a very strong concept within the British political parties, believing that the benefits of low taxes and reducing regulation are huge. Now, the market chooses not to believe in this concept."
The original intention of the British government to issue tax cuts was to promote economic growth, but the release of a loose fiscal policy at this time is undoubtedly contrary to the Bank of England's deflationary monetary policy trying to curb inflation. Mohamed Erian, dean of the Queen's College of Cambridge, said that like when driving a car, the Chancellor's foot is on the accelerator, and the President of the Central Bank's foot is on the brakes, it is not a good way to promote the British economy.
On September 2, a man refueled at a gas station in Manchester, England. (Xinhua News Agency, photo by Jon Hugper)
market institutions predict that the depreciation of the pound may exacerbate inflation in the UK, as more expensive imported products may lead to higher prices of goods in the UK. From April to July this year, the UK's inflation rate set a record high in 40 years. In order to cope with high inflation, the Bank of England has raised interest rates seven times since December last year.
(Source: Xinhua News Agency)
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