Blain’s Morning Porridge – Nov 4th: The UK prepares it’s Economic Suicide Note.. Where is Guido Fawkes when you need him?
“For god’s stake go man, you are no use here anymore.”
This morning: The Bank of England laid out bleak scenarios for the UK economy – but the outlook and long term future will be worse because the Government has “straight-jacketed” its budget options down to Austerity – which will lead to economic disaster. There is an alternative!
I’m on the Isle of Wight this morning! It’s beautiful, the sun is up, and as we collect wood to build a massive bonfire, economic Armageddon approaches! Tonight, we’ll be lighting a massive beacon at the top of Steven and Jane’s hill, launching fireworks, all to celebrate Guy Fawkes attempting to blow up Parliament in 1605. Where is he when he’s needed?
No surprise the Bank of England aggressively hiked 75 basis points y’day, and piled on the pain. Sterling, gilts and stocks slid. One couldn’t but detect an element of “told-ya-so”, but quiet satisfaction, as Governor Andrew Bailey put the blame fairly and squarely on the Gruesome Truss-Kwarteng Twosome for the hopeless outlook for the UK economy.
Rates will rise further. The Bank laid out outcomes ranging between the devil and deep blue sea. It’s either a deep recession for 2 years, 10% inflation falling to 5% next year, interest rates rising to 5.25%, and 4% unemployment. Or we might get a deeper recession, higher unemployment, but lower interest rates and a faster fall in inflation.
Of course, neither will happen.
It will be worse. Probably much worse.
What follows this morning is not a rant at the UK Conservative party – there are some very fine Tory MPs and many of my friends are members. But it needs to be said – they are still not listening. And until they do – things will not get better. I fear they are leading us to disaster – and that’s bad for markets and my pension pot!
In less than two weeks the latest Tory government will reveal a straightjacket budget on the Nov 17 financial statement. “Straightjacket” you ask? In the wake of the Kwarteng disaster and after watching their financial credibility dissipate in a puff of hubris, Rishi Sunak and Jeremy Hunt find themselves with no options but to hike taxes and cut budgets – classic Austerity.
Austerity has been proved to fail again and again. It’s an economic policy that has previously achieved nothing except constrain future growth, raise poverty, and widen inequality.
The Austerity burden will fall as a doubled edged sword across the necks of the poorest and most vulnerable in society. The poor will see vital services deteriorate further while their marginal disposable income is slashed by inflation. In short; they will receive less help and their income will stretch less far.
After a few years of Austerity, the UK will be left with an economy even less functional than today. Waiting times in hospitals will be longer. National and Local bureaucracies will become more like treacle and less effective. The nation’s infrastructure will more exhausted, more broken, and more unfixable. We will be less, not more attractive for inward investment, as a trading partner and our soft-power will be that much less influential on the World Stage.
But the Tories will claim they tried to balance the budget. They will present themselves as the party of financial stability and competence – despite the mounting evidence the last 12 years of Tory government has seen the steepest relative decline of the UK since the days of Empire. For a nation with such an inventive and innovative culture, self-imposed austerity is a tragic mistake.
They will say the City gave them no alternatives – forcing them to adopt financial prudence, orthodoxy and Austerity.
The City.. the Markets are not demanding the economic suicide of the UK. The City gave a unanimous vote against the economic incompetence and arrogance of Kwarteng. It was shocked at his refusal to heed advice – and the fact he was listening to Patrick Minford and being guided by the libertarian Institute of Economic Affairs. The City, the Market, wanted competency and ideas, not ideology.
The coming financial statement does not need to doom the economy. Whatever the mainstream media think – and lets be honest, explaining bond markets is not the forte of our otherwise excellent national newscasters – the UK is not going bust. If interest rates rise, that’s what they do, but it doesn’t stop the UK borrowing. And there are multiple options presented to raise government revenues through variations on QE and targeted windfall taxes. I have written about them previously.
The brutal reality is the Tory government, no matter how good Rishi Sunak may be, is hamstrung, hobbled and caught in an economic straightjacket of its own design and manufacture. The only way out for the nations, and one MPs have privately told acknowledged, is the reset a General Election would provide.
We all distrust politicians, and we would be right not to place too much hope in the Labour Party in the dull Kier Starmer – but anything is better than the current impasse. A new Labour government neds to show its new Economic programme and policies are designed to complement rather than magnify the pain the Bank of England’s higher rate policy is inflicting to combat inflation.
I believe it can be done…
Here endeth today’s rant.
Strategist – Shard Capital