Thunderbird Economics Are Go

Posted on Sep 29, 2022. by NTI

The hat of Virgil, captain of Thunderbird 2, sits uneasily on the head of Andrew Bailey, Governor of the Bank of England which is so full of tumbling facts that sometimes even he doesn't know what he is thinking. Late yesterday (Wednesday 28 September) he and his bonds and gilts pod flew to the rescue of the pound.

Emergency action was taken and a £65 billion bond-buying programme was loosened onto the market to help stem a crisis in Government debt markets. The alternative appeared to be "a material risk to UK financial stability" started by Kwasi Kwarteng's maxi-mini last week (oh, how he must wish he had kept his head down when our new prime minister was calling names for her new netball team and was looking for a chancellor with an alliterative feel).

Diametrically opposite this corner of financial sense is Liz Truss and her new team and she is said to be demonstrating 'Thatcherite grit' (oh dear ...) in her determination to stick to her guns in putting the country on what (at least) she thinks is the right trajectory for the long term. Many of us on the periphery of the new cabinet are quite surprised to hear Ms Truss talk of the 'long-term' as, right now, it is not that clear there will be one.

"Do you also have plans for a poll tax, Liz?" shouted one journalist at her as she emerged from No 10 yesterday, having quickly decided to change from an outfit that had been described as 'sheepish'.

The Bank's intervention, described above, was defined as 'risky' by economists who warned it could further fuel inflation, as the central Bank said it would buy billions of pounds of Government debt to prevent people’s pensions being put at risk. At least Andrew Griffith, financial secretary to the Treasury, is onside explaining that the real financial enemies are Putin's war, high energy bills and supply-side implications.

The immediate fallout from the Bank of England's intervention helped to ease conditions in the bond market, but average yields are still close to 7 per cent. This is up from 5.5 per cent before Kwasi Kwarteng announced his tax cuts and a plan to fund them with borrowing, sparking a widespread sell-off of UK assets. This has an impact on businesses seeking loans and other financial assistance as liquidity in the corporate sterling market is “almost non-existent” at the moment.

None of the above makes happy reading but if you turn around slowly you should just about see 'the brink' emerging on the horizon. We suggest you look under your seat to check the condition of your life jacket.


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