The United Kingdom is definitely going to the dogs (and I obviously don’t mean the races). The Pound Sterling is literally collapsing against all major and even not so major currencies, while the prices of most goods and services in line with interest rates are in a steep ascent. Interest rates are now forecast to reach close to 6% sometime next year, which spells bad news for all those with mortgages on a tracker or the SVR – and not least those whose fixed rate deals are due to expire over the coming months.
And then there is the government: After a few shambolic years under Boris Johnson and his minions, hopes were high for a fresh start under Liz Truss…. Well, it looks like it wasn’t meant to be. The mini-budget announced by the Chancellor on 23 September really only helped the high earners and the rich, albeit probably only to an extent, as many of them would much most likely have much of their wealth stashed away in tax efficient products and jurisdictions anyway.
The Treasury expects to borrow an extra £160 billion as a result over the next few years, not to mention the £60 billion cost of the energy subsidies for households. What the markets make of these plans was immediately clear: Nothing at all. The Sterling collapsed while yields on gilts were shooting up. Kwasi Kwarteng is placing a big bet on an expected increase in investments in the British economy in order to raise productivity. The Chancellor is no doubt a very bright mind and highly educated, but these steps nevertheless go against all conventional economic wisdom. Experience has taught me that sometimes a bit of self-doubt and listening to others does not go amiss. There is no doubt at least a grain of truth to former US President George W. Bush’s Secretary of Defense Donald Rumsfeld’s famous quote “…there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.”
I fear that this expected economic rebound is unlikely to happen. The steep rise in energy costs to households and businesses together with the general price rises already puts many family budgets in a very tight spot. Add to that mortgage rates which could almost double from here (most lenders have already pulled their cheapest deals on offer in recent days) and not many households or business will feel flush and confident as far as the economic and their personal financial outlook is concerned. I, therefore, expect, that any or most of the funds which households save through the subsidised energy scheme or in taxes going forward will be put away for a rainy (or even rainier) day if there is anything left at all after all these cost-of-living increases.
Where is all this going to leave us? God only knows, but for sure it’s going to get worse before it gets better. Falling stock and bond markets are going to deplete pension pots and potentially wipe out providers of defined benefit pension schemes (this was the main reason for the Bank of England’s declaration of buying gilts in the market). Living costs are likely continuing to rise well into or maybe even all through 2023, although maybe not at the steep rate of recent months. A dismal outlook for a country which in 2020 still was the fifth largest economy in the world.
The conservatives have been in power now for 12 years and the events of recent years have shown that there is now need for new ideas, a new approach. The British public seems to think the same: By some of the latest polls published on 30 September, the Labour Party leads the Tories by a staggering 20 to 30 percent. Just changing Prime Ministers – something the Tories have now done a number of times since they came to power in 2010 (and, yes, I am aware that 2019 was a general election) – just doesn’t cut it anymore. So someone please press the ‘Reset’-button and let’s have a general election.
The grumpy older man 