‘Listen to the market!’ Analyst blasts Truss after ‘standing by’ disastrous economy plan

‘Listen to the market!’ Analyst blasts Truss after ‘standing by’ disastrous economy plan

Liz Truss has been lamented for “ignoring” the UK markets after the Prime Minister defiantly refused to reverse the so-called “mini budget” that her Chancellor Kwasi Kwarteng laid out last week. Senior market analyst Craig Erlam accused the Truss government of “willingly” and “completely ignoring extreme market reactions” as it pushes ahead with its financial plans to get the economy growing despite market turmoil. 

Mr Erlam attacked the Government’s economic plans, which have contributed to the drop in the pound, as a “massive gamble” after Mr Kwarteng announced £45billion of unfunded tax cuts on Friday last week, sparking a market rout.

He told Express.co.uk: “It’s a massive gamble of open there’s any doubt about that. I’m not sure they would have taken such a gamble if the polls were not so against them, which may be why they’re standing by it.

“For me, a government can’t just willingly, completely ignore extreme market reactions.

“We should listen to markets, it’s an accumulation of opinion but the fact that you’ve got former Bank of England officials, former Treasury officials in the US Fed officials, former Fed officials, there seems to be a united front against this mini budget on top of the market reaction.

“So I tried to then get in the mindset of the Government, why on earth would you continue to ignore that? Why would you think it was good idea in the first place to provide a very demand-side focused stimulus on an economy that’s overheating at 10 percent with supply-side problems.”

Ms Truss’s fiscal plan, set out by Mr Kwarteng on Friday, triggered a crisis of confidence in the government, hammered the value of the pound and government bond prices and jolted global markets.

This morning, the FTSE dropped as much as 2.2 percent to a fresh six-month low before recovering somewhat later in the morning.

Sterling fell as much as 1 percent before cutting some of its losses, as Ms Truss defended the government’s economic plans.

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She said the mini-budget was the “right plan”, in spite of mounting calls – including from the International Monetary Fund (IMF) – for a U-turn on some of the policies announced last Friday after the pound sunk to a record low of 1.03 against the US dollar on Monday.

As Ms Truss took to the airwaves, the FTSE 100 Index in London fell by more than 2 percent at one stage following a rollercoaster ride of volatility on Wednesday, with the bounce from the Bank of England’s intervention fading as investors remained worried about the Government’s economic plans.

But Mr Erlam branded the move a “Tory first policy” which could be seen as a bid to “save” the Conservative Party at the next general election. 

He said he belived they could be standing by their plans because “they’re well behind the polls and the election is in two years, and they’ve rolled the dice with big tax cuts in the hope of getting fortunate with inflation, and hoping to kind of save their reelection chances”.

Mr Erlam said: “And maybe that’s why they’re standing by them because they don’t see the benefit politically of back down. 

“I truly, truly believe that if this was a start of a five year term, rather than a two and a bit year term, they would have waited a year, maybe two, to implement most of these policies, they would have let inflation get under control first.

“And they would have implemented these policies as part of a recovery plan, either in the middle of or towards the middle of the term, knowing that a bunch of the policies would still be unpopular, because they favour the wealthy and allow themselves two to three years to brush that over before they go back to an election.

“I think they’re doing these policies now rather than a year or two because they don’t want to announce a bunch of unpopular policies just before they need the centre ground to vote for them.

“So it feels like a very kind of Tory party first policy, but you then you don’t just want to level this at the Tory party because there’s a lot of people within the Tory party which are reportedly very angry about this.

“But it feels like this budget has been put together in the hope of saving the Tory party in the next election by doing things now that they don’t want to do in two years time, yeah, and may not be able to do after that.” 

Mr Erlam said there was a “time and a place to implement economic policy” and the time wasn’t now. 

He added: “As with everything, there’s a time and a place to implement an economic policy and in much the same way that everyone’s was saying back in the early 2010s to George Osborne the biggest recession since the Great Depression is not the time to implement austerity when borrowing costs, are zero … inflation at 10 percent when borrowing costs are expected to rise to four or five percent is not the time to implement a massive budget deficits in order to bring tax cuts to those who don’t need it.

“Even if in the long term, if you think that is good economics, and you think that low taxes are beneficial for the economy and we all win bigger pie, so we all win, there’s a time and a place to implement policies and I just don’t think this is it.”

Published at Thu, 29 Sep 2022 11:11:00 +0000