Economics: Anarchy in the UK

Fallout from the fiscal event

The recent ‘mini budget’ has plunged the UK into crisis, exacerbating pressures that have been building globally. It has created two problems: an overly loose macro-economic policy stance; and a loss of credibility around the policy framework.

A macroeconomic policy imbalance

Credibility is much easier to lose than regain. And correcting the policy stance might prove challenging too. A complete U-turn looks unlikely. And the scale of rate hikes now being discounted risk pushing the economy into its deepest downturn in decades.

Managing costly trade-offs

The path of least resistance could be a less aggressive tightening of policy, a more persistent inflation overshoot, and a weaker pound. Other policymakers could face similar trade-offs between financial instability, economic downturns, and inflation.