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UK in ‘trickier position than when Truss and Kwarteng crashed economy’ as price of bonds plummet, says Andrew Marr
13 June 2023, 18:45
Andrew Marr on UK's economic situation
The price of bonds in the UK are 'worse now' than when Liz Truss and Kwasi Kwarteng launched their mini-budget last autumn, as Andrew Marr suggests Tories could be on track for a pre-election recession.
Speaking on Tuesday's Tonight with Andrew Marr, Andrew said: “Something funny's going on. Think back, if you can, to September. Liz Truss was prime minister and Kwasi Kwarteng was Chancellor. They were pursuing a hell for leather, growth or bust policy of unfunded tax cuts. And in the end it was bust.
“The international markets looked at their numbers and didn't believe them and the price of government bonds plunged, sending the cost of borrowing right up, with an impact on mortgages and ultimately destroying Truss's government in record time.
“It was all a bit scary and very dramatic.
“What's funny, or odd I should say, is that the price of bonds right now is worse than it was back then. It's all a bit technical but the key measurement, gilt yields, suggests if anything, a trickier position even than when Truss and Kwarteng - in the phrase of the moment - crashed the economy.
“So where is the torrent of bubbling, excited commentary, the urgent debates in the Commons, the questions about whether the prime minister and Chancellor will survive?
“After all, the problem seems to be caused by a general assumption that the Bank of England is going to raise interest rates above the current 4.5%, perhaps three more times, hammering mortgage holders and causing sustained problems in the mortgage market.
“So it's not as if this is an abstract story: it's something that affects families right across the country. And the markets are behaving like this and making guesses about the bank, because underlying inflation, driven by wage increases, now above 7% in the private sector, has been much harder to push down in Britain than in other countries.
“And these are wage increases, by the way, which won't feel like wage increases because they are still below inflation.
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“So there's a growing gap between the political story - the Prime Minister insists that he will halve inflation this year - and the economic story, with the markets apparently still very sceptical.
“Perhaps the difference is that in the autumn, the markets thought the government was trying to do something batty and impossible; Britain faced a situation when the markets might simply stop borrowing our debt at all and, civil servants at the time believed, drive the country to literal bankruptcy.
“That is not where we are today.
“International finance hasn't lost its trust in Rishi Sunak's or Jeremy Hunt's grasp of reality. Now market-makers simply think the new government is struggling with a really tough, intractable problem.
“But in raw numbers the outcome isn't so different for ordinary folk. And with a relatively weak, quite small economy, won't these repeated Bank of England rate rises simply drive us into recession, perhaps just as next year's election looms?
“And if there is one lesson from the Truss period which applies just as much today: it's that trouble in the markets will become, sooner perhaps than later, trouble in politics as well.”