UK budget impacts markets

The mini-budget announced on September 23 by the new UK government is an unusual experiment in fiscal profligacy which has now sparked chaos in financial and currency markets and could cause lasting damage to both the UK economy and credibility. government policy. While there were positive elements in the package, including increased spending on infrastructure and the digital and green economy, the budget’s most notable feature was its $45 billion unfunded tax cuts. pounds (S$70.2 billion) that mainly benefits the top 20%, in addition to a more than £60 billion program to offset soaring energy prices through caps tariffs. The result will be a massive increase in government borrowing, which has led to a spike in bond yields. The mini-budget has been criticized by several economists as well as the International Monetary Fund, which, in an unusual critique of the policies of a major economy, has called on the government to reassess its plans.

The market reaction was brutal. On the first trading day after the budget announcement, the British pound crashed to a record low against the US dollar and weakened against the euro and Japanese yen – as well as the Singapore dollar, against which it has lost around 15% this year. The Bank of England’s emergency action to buy government bonds has helped bond yields stabilize and the currency recover slightly, but the pound remains at a 37-year low against the dollar US dollar and at a historic low against the Singapore dollar. High bond yields and the need to support the pound raise the prospect of sharp interest rate hikes, which threaten Britain’s economic growth as well as its mortgage market. Credit Suisse analysts estimate that real estate prices could fall by up to 15%.

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