Support 100 years of independent journalism.

  1. Comment
26 September 2022

From the US, the UK’s economic policy appears senseless

In America the view that sterling is now an emerging market currency is not a meme but a widely-held sentiment.

By Ed Price

Last Friday (23 September) I spent the day trying to explain to my American friends why the UK had embarked on the biggest tax cuts since 1972. 

What was there to say? As an Englishman in New York, I often find myself elucidating our various eccentricities. A lot of the time it’s great. You know the drill. Yes, we like colourful socks. No, we don’t all play cricket. This time, however, was not so fun. In the UK, inflation is at 9.9 per cent. The government is also borrowing £150bn to freeze household energy bills. That sort of borrowing – a new windfall tax on energy firms was another option – is also inflationary. Thus, abolishing the top rate of tax for the highest earners (£150,000+), as Kwasi Kwarteng, the Chancellor, did in his mini-Budget, doesn’t make sense. Inflation is the real worry now.

Don’t take my word for it. Take sterling’s. The pound is teetering just above the dollar. And take the Bank of England’s. It has increased interest rates from just 0.5 per cent in February to 2.25 per cent now. Presumably, in coming weeks, the two will grow even further apart. Sterling has further to fall. Rates, further to rise.

Larry Summers, a prominent American economist, sniffs disaster: “Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Summers won international economics last year by predicting inflation in the US. His warnings are frequent, but serious. His track record? Robustly plausible.

In the morning I got on Bloomberg radio with Kriti Gupta and Paul Sweeney. Super smart people, and yet perplexed. At once, I found myself confessing that UK fiscal policy and UK monetary policy are now at odds. As per the above, the Bank of England has raised its rate. That means it’s worried about inflation. Very worried. Meanwhile, however, look at last week’s mini-Budget. That means the Treasury’s… not? Now, to be fair, the Conservative Party exists to cut taxes. No news there. But the Conservative Party also exists for fiscal responsibility, meaning for low inflation and a stable currency. Low inflation and a stable currency are, for want of a better word, good. All I could do was admit to the clash. My American hosts – steeped in markets and economy – were puzzled. Blinking and puzzled.

Select and enter your email address Quick and essential guide to domestic and global politics from the New Statesman's politics team. The New Statesman’s global affairs newsletter, every Monday and Friday. Your new guide to the best writing on ideas, politics, books and culture each weekend - from the New Statesman. A weekly newsletter helping you fit together the pieces of the global economic slowdown. A newsletter showcasing the finest writing from the ideas section, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Sign up to receive information regarding NS events, subscription offers & product updates.
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.

And then there came the kicker. Paul wanted to discuss the pound’s precipitous slide (then at $1.09, now $1.07 as I write). In the world of economics, this is what we call no bueno. I suggested it means parity looms, or a condition in which one pound is worth one dollar. Kriti and Paul, with all good kindness, went further and explained the pound was now an emerging market currency. This, I resisted. It sounded like a Twitter meme! But they were only expressing a widely-held sentiment. To American eyes, UK economic policy appears incoherent. Forget Fifth Avenue this Crimbo, folks. It might as well be on the moon.

Content from our partners
Supporting customers through the cost of living crisis
Data on cloud will change the way you interact with the government
Defining a Kodak culture for the future

Still, nil desperandum. The dollar is independently strong. The war in Ukraine, independently disruptive. And sterling, adjusting to a post-Brexit reality, was always going to fall against other major currencies. There is no way to leave the largest trading bloc in the world and not have capital markets wonder aloud about the health of our economy. Sterling needs a new narrative. The old one – a combination of European market size and British ingenuity – is gone.

Happily, there are new narratives to be had. There are possible futures in which a weaker pound is no deterrent to inward investment and indeed boosts exports. There are futures in which a sterling smile emerges (people buying the pound whatever the headlines). And there are futures in which the Americans and others think highly of us again. As stated, nil desperandum. Life is long and life is strange.

Right now though, as an Englishman abroad, it feels like it’s trending stranger every day.

[See also: Kwarteng hands FTSE bosses a £34m tax break]