A Fine Economic Mess in the United Kingdom
New YorkerDec 24, 2022
BoE to Purchase Bonds Amid Collapse in Bond Market, Historic Pound Slump
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Image copyright: SOPA Images/LightRocket/Getty Images [via CNN]
The Facts
The Bank of England (BoE) announced Wednesday that it would temporarily purchase UK government bonds “on whatever scale is necessary” to calm the market amid a historic selloff of bonds following the government's announcement of a significant tax-cut and borrowing package last week.
Despite the BoE's intervention, the pound sterling continued to drop against the dollar, having dropped to its lowest ever level of $1.0327 against the dollar on Monday.
The Spin
Right narrative
Liz Truss's economic plan makes complete sense. The PM — who is in a race against time; facing the prospect of an election in two years and an impending recession — has finally reprioritized boosting growth and shrinking the state. While lower taxes and allowing the Bank of England to tackle inflation by raising interest rates may be painful at first, it's the right thing to do in the long term.
Left narrative
Studies have shown that tax cuts don't fuel growth. The UK already has the lowest corporate tax rate in the G7 and one of the softest regulatory regimes along with it. "Trickle-down" economics is a failed policy, and further tax cuts under these circumstances make no sense whatsoever.
