After taking office for only three weeks, Tras, the third female prime minister of the UK, had just been in office, after finishing the funeral of Queen of England, he couldn't wait to fulfill his campaign promise and announced the UK's economic growth plan. He would play big in one sentence. In fact, there was nothing new. He just learned the United States' style, ignored the fiscal deficit, and issued large-scale bonds to start fiscal stimulus and tax cuts.
Reasonably, such a large-scale tax cut and fiscal stimulus plan should boost market confidence in the UK economic growth and attract investors to stay in the UK. However, the bond issuance plan and the Bank of England's preparation for reducing holdings of Treasury bonds have prompted the price of UK Treasury bonds to plummet, and the yield on Treasury bonds rose sharply. The yield on the UK's two-year Treasury bonds continued to rise, rising 40 basis points in the day, recording the largest single-day increase since November 2009. The yield on the UK's 5-year Treasury bond jumped 50 basis points, setting a record-breaking biggest gain. The UK's 10-year Treasury bond yield recorded its largest single-day gain since 1998.
UK 2-year Treasury bond yield chart
UK 5-year Treasury bond yield chart
UK 10-year Treasury bond yield chart
At the same time, the pound fell sharply against the US dollar, falling in one day More than 400 points, the intraday decline was 3.58%, with a low of 1.08331. The historical low of pound and the United States was 1.05200 in 1985; in June 2016, the lowest point of the British Brexit referendum, the lowest point of the British pound decline was 1.18410; after the official Brexit in January 2020, the lowest point of the British pound decline was 1.14120. At present, the British pound has challenged the historical low and is very likely to fall to parity.
pound US-Japanese trend chart
Treasury bond prices plummeted, indicating that a large number of investors sold British Treasury bonds, and the sharp drop in the pound indicates that a large amount of funds fled the UK. I don’t know how Trass was feeling at this time. But this lady who is jokingly called brainless by most Chinese netizens is very terrible. Let’s take a look at her ambitious economic growth plan.
-Massive bond issuance plan: The UK government plans to issue bonds of 193.9 billion pounds (more than expected 192 billion pounds)
-Massive tax cut measures: cancel the plan to increase the national insurance payment amount by 1.25%, and reduce the basic income tax rate from 20% to 19% (these two items are for all British nationals); the tax rate for individuals with annual income exceeding 150,000 pounds is from 45 % was reduced to 40%, and the stamp duty was significantly reduced, namely, the home purchase tax was cancelled, and the upper limit of bonuses for bankers (for the rich in the UK); while British companies were cancelled the Johnson government's plan to raise corporate tax to 25%, maintaining the 19% tax rate (the lowest in the G20); "Investment zones" were established in various places to provide tax cuts for enterprises and relax their planning and supervision; in addition to the above three categories, the UK also proposed tax reduction measures to stimulate consumption such as tourists' tax refunds and alcohol tax cancellation.
British government debt to GDP
Tras These measures can be said to be nakedly competing for European resources, and take advantage of your illness to take your life. As we all know, Germany and France have long been eyeing London's status as an international financial center. Before Brexit, Paris and Frankfurt were planning to replace London. This time, Tras canceled the banker's bonus ceiling, which is largely a way to release goodwill to the capital of the Financial City. The goal of keeping the tax rate at the lowest level in G20 is also obvious, to attract more companies to land in the UK.
Can Tras, who is determined to imitate Mrs. Thatcher , get what he wants? Mrs. Thatcher also carried out large-scale economic reforms for tax cuts, but Mrs. Thatcher was tightening government fiscal spending while stimulating the economy while tax cuts stimulated the economy to control risks. Tras not only cut taxes on a large scale, but also increased the government's fiscal expenditure. The plan will undoubtedly increase the debt burden of the UK government. At the same time, with the backdrop of double-digit inflation in the UK, using fiscal measures to stimulate the economy on a large scale will probably cause inflation to rise further.
The new crown epidemic has not completely subsided, and Europe ushered in another Russian-Ukrainian conflict, while the energy and food crisis swept the world.The United States is carrying out the strongest rate hike in history. It seems inevitable that the US economy will land hard, and the global economy is also likely to fall into a long-term recession. The UK is making a "big bet" at this time point. It is hard to say whether it is a blessing or a disaster for the UK, whose national strength is constantly declining. If the bet wins, that is, economic growth meets expectations. If the economic growth controls inflation, it will inevitably save the decline of the UK; if the bet loses, the economy will collapse, and then it will inevitably face a split situation, and Scotland and Northern Ireland will inevitably leave the UK. We will wait and see what the result will be.
