Kwasi has 2 weeks left to get his stats into shape
14 Oct, 2022
Kwasi (playing himself) : Hi. My name’s Kwasi. I’m all about growth, babe. I’m a relentlessly upbeat guy. [throws around some wildly exaggerated vital statistics].
Office for Budget Responsibility (playing the role of Babe): Hi. You sound too good to be true! Let’s meet up. How’s 31st October at the U-Turn Tavern?
The UK’s finances are in a mess
The most maxi of mini Budgets three weeks ago rattled financial cages as the Chancellor promised tax cuts but gave no solid idea of how he would pay for this. And when money coming in doesn’t equal money going out, credibility is called into question.
If a financially prudent friend asks you to borrow £100 for a year, you might say 'fine', and interest of 5% is 'OK'. If someone who is always broke asks you to borrow £100 for a year, you might gulp and say 'OK but interest of 15% please'. This is what has happened with UK Government bonds which suddenly look like a dodgier bet, so investors are demanding more in return for the risk of lending them money. If you’re playing catch-up with this story, and the shenanigans with pensions, my Idiot’s Guide to Bonds (written so that even I understand it!) might help.
2 weeks left to shape up, tick tock
The Chancellor has made some big, ideological calls, with no detail on how this all adds up. 31st October is set as the Big Reveal as he will show his workings with the OBR (playing the role of Maths examiner).
The problem is, if you have exaggerated your vital statistics, and a 50 year old pie lover shows up, instead of a metaphorical muscular 30-something hunk-a-love, we all know what happens. You get dumped.
Let’s be fair, readers. Our broader economic woes do not lie at the door of any one political party or group.
The ongoing war in Ukraine, energy nightmares, soaring food prices, inflation, increasing interest rates around the world, a strong dollar, China is a basket case - oh and let’s not forget the Taiwan tensions… these are global challenges which would be a nightmare for anyone to manage.
However, the recent chaos in markets, the yo-yoing bond markets, plunging pound, the pensions collateral crisis and the lack of credibility are all an own-goal. No other nation exited the IMF meeting early to race home. It’s a mess.
Enter my cleaner, stage left
The policy fist fight between the Bank of England and the Government has been almost embarrassing to watch, as the Bank of England battles inflation with higher interest rates to stop us all from spending. But the Chancellor indiscriminately throws fistfuls of cash back at us, cutting taxes and shouting 'GROW YOU BUGG3RS, GROW!'.
When Jacob Rees-Mogg (playing the annoying cockroach-like toff) blames the Bank of England for this mess, it’s no different to me shouting at my cleaner for the mess in my daughter’s bedroom. They are running around with a dustpan and brush trying to clean up the naïve mess of the Government – they are not the source of this specific problem.
And so the stage is set
This is a bit like watching a Greek tragedy. There’s no happy ending here.
Some global contagion feels inevitable. Many financial crises happen when assets that were seen as pretty safe (in today’s markets, this is bonds) suddenly tank, rather than when assets that were seen as risky suddenly tank. Financial boffins around the world will be stress-testing and war-gaming and nail-biting.
There will be ongoing turmoil with bonds and pensions – the Bank of England has offered a sticking plaster here, not a solution. And this plaster is going to be ripped off today (or maybe not?) and it’s going to hurt. It feels probable that they will have to offer this plaster for a bit longer, but I don’t claim any inside knowledge here.
And as for the Chancellor and the PM, global financial markets are dictating the course of national politics. They want that first date and they want to see the Chancellor up close and personal. They don’t trust the stats. And they are pointing to a U-turn.
Probably followed by an exit.
Have a great weekend everyone.
Holly
