2022 09 29 Financial crash
ICSM Business Comment: we’ve been here before with a self-inflicted financial crisis – and it is business and the public who will pay the price
By Harry Mottram: Those with long memories of the horror’s of Black Wednesday and Lamont’s 15% interest rate hike or Tony Barber’s disastrous 1972 ‘Go for Growth’ budget will have that sinking feeling that we’ve been here before. Historians will note that in so many cases these moments of economic suicide are largely self-inflicted. Yes, the Credit Crunch of 2008 was triggered by the sub-prime mortgage scandal in the USA and the nation’s current economic woes are in part due to the Russian-Ukraine War along with supply issues created by China and Brexit. But there was no need for Kwasi Kwarteng to announce the tax cuts without explaining how the cuts would be paid for – and simply relying on a vague notion of growing the economy and of massive borrowing.
We all want the economy to grow but the mini budget has pushed the economy (already into recession) into reverse. Interest rates are set to rise, inflation is around double digits and the pound against the dollar has taken a massive hit. None of these blows are likely to be reversed soon it appears - based on the Prime Minister Liz Truss’ interviews today (29th September) - meaning the Bank of England who have already stepped in by buying Government debt in the form of bonds is likely to hike interest rates.
That’s bad news for everyone with as usual the public and business pick up the bill. Firms who were already struggling with the rise in energy costs, labour shortages, inflation and supply problems are now facing an even worse situation before Kwasi’s mini budget made it a whole lot worse.
Of course, the sky doesn’t fall in and the world doesn’t come to an end but it will mean a rise in business failures and already there some worrying trends. Shares on the stock market have fallen while fixed costs and debt repayments will rise, and with the pound’s value against the dollar down so many imports will shoot up in price including oil – the one product that effects everything.
Hopefully cool heads will prevail and there will be some reassurance from the government with actions to regain the confidence of the markets. The Thatcher Government may have pretended not to do U-turns but the Chancellor Geoffrey Howe raised VAT from 8% to 15% to afford cuts in income tax rates. If Margaret Thatcher could make big economic adjustments, then the PM Liz Truss who sees herself as the new Maggie can. Let’s hope so.
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For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk