Financial crisis: Bank of England intervenes

The Bank of England has launched an emergency intervention after the new government's tax-cutting plans sparked a crisis on the financial markets, causing the pound to plunge. Its purchase of UK government bonds is intended to restore confidence in the economy. The Chancellor of the Exchequer Kwasi Kwarteng has announced that he will set out a detailed medium-term fiscal plan in November. Commentators discuss the reasons behind the crisis.

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The Guardian (GB) /

An unmitigated disaster for Truss

The damage caused by the new government's economic package goes far beyond the pound's nosedive, rails The Guardian:

“The Bank of England's emergency intervention in financial markets on Wednesday qualifies as a crisis - for the Bank, the government and the public. This is a crisis made in Downing Street, and it is not over yet. ... For Mr Kwarteng and Ms Truss, this is an unmitigated disaster. Their first major policy has been shot down by financial markets, their claims to economic competence shredded.”

De Volkskrant (NL) /

Blind, deaf and dumb

The confidence of the financial markets is disappearing, analyses De Volkskrant:

“In summary, the criticism of Chancellor Kwasi Kwarteng's 'Kami-Kwasi budget' is that the plans have not been sufficiently thought through, that they ignore basic economics and make an already bad situation even worse. The British government is thus acting blind, deaf and dumb. ... After much criticism, Kwarteng said that the government's plans would be made clearer on 23 November. ... That means the financial markets will have to wait patiently for another eight weeks to find out what the plans actually mean - an eternity in a world terrified of uncertainty.”

De Tijd (BE) /

No painless way out

The crisis Britain finds itself in should serve as a warning to Europe, says De Tijd:

“We now live in a world where central banks are raising interest rates ... That hurts. Governments react by handing out money to voters, which makes inflation go up again. ... We are not immune to what is now happening in Britain. The only upside of the fact that the British Tories are now completely messing things up is that it may make it clearer to us here in the European Union that there is no painless way out of the world of high inflation.”

The Observer (GB) /

Handouts to the rich at the expense of the young

The country will be heavily saddled by the massive increase in the national debt, warns The Observer:

“There is nothing Conservative about giving unnecessary handouts to the rich and burdening those in their 20s and 30s with the cost of financing the extraordinary rise in the national debt for the rest of their working lives. No country has successfully achieved growth through these means. ... The terrible truth is that whoever wins the next election will inherit one of the worst-ever economic outlooks as a product of Truss's brazen, ideological experiment. It will cost the country dear.”

The Daily Telegraph (GB) /

Working will finally be worthwhile again

The British government's change of course will bear fruits, The Daily Telegraph is convinced:

“Tax reductions are always seen as a 'cost', as if the Exchequer is entitled to 100 per cent of GDP, and always have to be justified. That is proof of deep bias. Why shouldn't spending need to be justified in the same way? Or all taxes? ... Yes, of course, inequality increases, but so what as long as the overall economy grows? That is exactly what Mr Kwarteng hopes will happen, and the £2 billion he gave up with his tax cut could in fact end up a lot smaller if more people work more, or additional skilled workers move here, as a result.”

Neue Zürcher Zeitung (CH) /

A high-risk gamble

The liberal Neue Zürcher Zeitung is not enthusiastic about the tax cuts:

“Rarely has a British government's budget been condemned so quickly, so strongly and so unanimously by analysts, economists and investors alike as the one presented by Chancellor of the Exchequer Kwasi Kwarteng last Friday. ... In the medium term, Liz Truss's government needs to do much more to unleash the promised growth. The pressure to succeed is huge. Growth is needed to keep the debt mountain from becoming fully unsustainable. It is a bet that the new Tory government will succeed in a nasty environment in doing what its Conservative predecessors failed to do over the past twelve years. If it fails, Britain will be saddled with a big mortgage.”

The Irish Times (IE) /

Loss of confidence looming

The Irish Times warns of the consequences of the tax cuts:

“The resulting rise in the budget deficit will require more borrowing, raising questions about the sustainability of the public finances. Chancellor Kwasi Kwarteng is betting that the tax cuts will boost economic growth, but investors are dubious. A longer-term loss of market confidence would bring significant costs in terms of government flexibility to manage the economy. The outlook for the UK economy, already seriously damaged by Brexit, could worsen.”

La Stampa (IT) /

Back to Thatcherism

Writing in La Stampa, Bill Emmot, former head of The Economist, blames Truss's fiscal policies for the pound's plunge:

“Liz Truss has only been prime minister for three weeks and much of that time has been taken up by the Queen's funeral. Yet in the short time she has had, Truss has pushed the pound down to record lows and is on the verge of triggering a downgrade of the UK's credit rating by the rating agencies. The main cause is the unexpected but dramatic budget announcement by the country's new Chancellor of the Exchequer, Kwasi Kwarteng, last Friday. Both he and Truss have declared their firm belief in a small state and low taxes - in sacred memory of Margaret Thatcher.”