Pound Sterling has “skidded” by more than one US Cent to below $1.10 after the announcement that the Bank of England was pulling out of its intervention in extending its £65 Billion emergency arrangement to prop up the pound, beyond 14 October 2022. But, it will intervene, if found necessary?
MP’s in Parliament were also relieved after the Chancellor of the Exchequer, Rt. Hon. Kwasi Kwarteng announced he was “rushing forward” his Debt Cutting Plan almost a month earlier than planned. This is in a bid to reassure jittery markets following weeks after his “Fiscal Event Statement,” which he made on 23 September 2022.
The markets may be calmed when the Chancellor sets out more details about how he “intends to manage or massage the public finances”.
We are told, he will then release the forecasts on the State of the Economy from the Office of Budget Responsibility (OBR) by 31 October 2022.
Supply-side economics, now also named “Trussonomics” by journalists, is based on the idea that the supply of goods and services within an economy is the main “driver of growth”. For many laymen, it is based on the idea that targeted tax cuts are more effective than general tax cuts to boost a falling economy, along with further post-Brexit deregulation of financial services.
Many will know this same theory was tried out in Sri Lanka, of lowering tax rates to boost government revenue, through higher economic growth during the years of President Gotabaya Rajapaksa. I need hardly state that it faltered and failed. It benefitted none other than the rich, who got away with paying fewer taxes, while those others who should have been liable, got away without, using the known excuses, only to us.
With markets in command today, there is little that the Bank of England or for that matter any Central Bank can do, like what our own Central Bank of Sri Lanka did until recently by “Quantitative Easing” (Q.E). We know the Bank of England dare not print more money for circulation.
What are the options available?
Every new government wants to better the previous government “testing out” innovative ideas, to curb inflation. But how much of it is achievable?
The Truss Government has repeatedly stated that what it wants is “delivery”. That “it’s plan will work”. We all know it is “doable” in normal times, but need I say these are not normal times? It is well known that governments as much as its citizens can take recourse in the fact that these are turbulent times, requiring the tried and tested, even though innovative ways are necessary, but take longer.
Commentators are all ganging up on the Truss Government, perhaps, as a woman, they “think” she can be manipulated. But still, others know, “she is not for turning,” Some MPs of her party are at her throat now, because she rewarded those loyal who stood by her and may I say appeased others who contested her. Apparently, she has won over the voters in the Conservative Party in the country, but not her own MPs who “think of none other than the next election” and don’t see her leading them “up the hill” to victory.
P.M. Liz Truss has been entrusted with a poisoned chalice. Besides, she has upset both President Joe Biden with her stance on Northern Ireland and of course President Putin. Like in Sri Lanka, you cannot please all the people all the time.
By trying to stimulate the British economy at a pace it is not ready, she has got a coloured Chancellor, to take on “more than he can chew and renegade on his fiscal statement”. Besides, she has got a Home Secretary, SuellaBraverman, to repel migration, who for what reason we don’t know, has criticised migrants from India. This has rightly angered India and according to reports (unverified), UK’s Trade Deal negotiated by Boris Johnson is on the verge of collapse.
Now, who knows, the Brits will be easily placed to blame others for all the blunders, including the IMF for chastising the Government for its intransigence.
The Brits, as far as I know, will always have a way out strategy, to get out of the mess. It was all planned well in advance not to have the OBR oversight along with the Fiscal Statement made by the Chancellor of the Exchequer. Now the OBR will try to undo his overly anxious and ambitious plans to save the situation. Alternatively, there will be another “fallback strategy” as a diplomatic cover-up to the war in Ukraine. Who knows, they have a plan for the production of armaments, during the extended “Cold War with Russia?