Since this year, the UK has replaced four finance ministers in succession, which is common in Western countries. The position of Treasury Secretary was originally the "second leader" in British politics, but now it is like a hot potato and no one can take it.
This inevitably makes people feel that whether there is a systemic crisis in the UK economy has caused no one to stabilize the situation.
The 38-day short-lived finance minister who just left office has introduced a series of outrageous fiscal policies, which has become the fuse for the crisis and directly pushed the British economy into the darkest moment.
From his hard push for the UK's most radical tax cut plan in 50 years to the announcement of the launch of the "mini budget", the British financial market experienced a severe earthquake, the pound 3 exchange rate fell to a historical low, and the government bonds collapsed.
Less than three weeks after he took office, the total value of the British market was lost at least $500 billion due to his policy.
All this comes from the fact that the Treasury Secretary puts politics above his profession and is eager to help the new prime minister fulfill his campaign promises. He chose a very bad opportunity to announce tax cuts - just at the extreme strong US dollar and is harvesting the world.
Five days after the announcement of the plan, the exchange rate of the pound against the US dollar fell sharply to 1.0789, close to 1 US dollar, plunging 6.5% in just five days. You should know that the fluctuations of currency generally will not be too large, and it is already obvious that it can fluctuate by 0.5% within a month. It was very rare that the decline exceeded 5% in 5 days and hit a record low.
Meanwhile, as early as mid-2021, the pound was worth about $1.4, compared with $2 in 2008. The last time the pound price approached $1 was in 1985. What is even more fatal is that it also creates a series of chain effects, with funds around the world fleeing wildly and selling British Treasury bonds. The yield on the UK's five-year Treasury bonds rose to its highest level since 2008, reaching 4.6%, which means demand for UK Treasury bonds has plummeted.
The criticality of the situation forced the Bank of England to urgently launch 65 billion pounds to buy bonds to save the market . International Monetary Fund , which rarely expresses opinions on specific national fiscal policies, can no longer sit still and rarely issue sharp criticisms, "Financial policy cannot run contrary to monetary policy ."
Because, when inflation is so serious, approaching 10%, and has been at a high level of nearly 40 years, the Bank of England has been raising interest rates and raising currency, but the British government has large-scale tax cuts, which is equivalent to issuing money. The former cools down and the latter adds to the fire. The contradictory practices make the whole world unable to trust the pound.
Another fuse of public grievances is the "mini budget" announced after the tax cut. Before releasing a formal budget, the UK will generally release a "advanced budget report" first. The report will make a general plan for the government's expenditure in the coming year. This advance budget report will be called the "mini budget".
After announcing the "mini budget", the Finance Minister did not explain how to raise funds and did not formulate a supporting fiscal framework for the tax cut plan, which made market participants worried that funds could not support tax cut measures, which would ignite the explosion of inflation and accelerate the economic downturn.
The UK government's fiscal deficit is serious and its foreign debt is also relatively high. Its foreign debt is more than 2.5 times that of GDP. In this case, fiscal discipline must be strictly observed, but the absurd and ignoring fiscal discipline has indirectly broken the credibility of the pound.
It is worth mentioning that when the UK faced a fiscal bankruptcy crisis in 1976, it was the International Monetary Fund that helped rescue him. Everyone is also paying attention to the rare statement from the International Monetary Fund. Will it take action to rescue the UK again?
The situation at that time was very similar to that now - the oil crisis in 1972 caused inflation all over the world, and the overall environment was the same as now. The British economy also experienced a recession. The politicians at that time also introduced tax cuts to deal with it, which led to a huge fiscal deficit in the government. By 1976, the British government could not hold on and could not save itself, and finally it was with the International Monetary Fund to survive the crisis.
The tax cut plan launched this time is the largest tax cut in the UK since 1972.Such a bad performance naturally led to public grievances in the UK. More than 80,000 British people signed a petition asking for an immediate general election to end the now chaotic government.
What made them most dissatisfied is that the tax cut plan benefited 5% of the rich. The UK Treasury evaluates that the wealthiest 5% of people will increase their income by 2% next year (2023-24), while the other 95% of the population will become poorer.
, a series of decisions that ignore economic laws, have made Britain's already poor economy even worse. Under huge public pressure, the Finance Minister was forced to make a 180-degree turn and cancel the 45% maximum income tax rate plan.
This practice is timely correction of errors economically, but it is politically marked as a "stigmatizing concession". The Finance Minister also changed his orders every day and lost all his prestige, and forced the MPs and the people to step down in disgrace.
The newly appointed Treasury Secretary also admitted that there are errors in the UK's economic policies. He publicly stated that the fiscal policy proposed by the British government was too hasty, especially on issues such as large-scale tax cuts. He plans to abolish some of the contents of the disputed economic plan and increase some taxes.
will also submit a new medium-term fiscal plan at the end of October. If this medium-term plan is still unable to calm market sentiment, the country may fall into a deeper crisis and even endanger London's status as an international financial center.
(Stone Page/Text)
#October New Financial Force#
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