The Standard View: Sterling crisis leaves no easy options for Kwasi Kwarteng

Christian Adams
Evening Standard Comment28 September 2022
WEST END FINAL

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The fallout from Kwasi Kwarteng’s “mini-budget” is far from over. The International Monetary Fund has criticised the “untargeted fiscal packages” and suggested the Chancellor had an opportunity in November to “re-evaluate the tax measures”. This is highly unusual language, particularly directed at a major economy such as the UK.

The IMF is not alone in its concern. Raphael Bostic, president of the Atlanta branch of the US Federal Reserve, warned the mini-budget had “increased uncertainty” and raised the risk of a global recession. Larry Summers, the former US Treasury Secretary, called it “utterly irresponsible” while the financial markets have made their views clear. Some estimates put the rise in government borrowing costs as a result of the changes at £20bn a year.

The Government could completely U-turn on the measures, though that’s unlikely. It could use the November statement to soften the tax changes or set out cuts to public spending — tricky and politically painful, given the demand for cash to fund everything from the NHS to the police. Or, as Lord Frost says, it could ignore the markets.

What is not sustainable is silence. The last few days have seen the mysterious absence of ministers from the media round, presumably out of fear anything they might say would further spook the markets.

The fallout is hitting homeowners. Mortgage products are being withdrawn. The Bank of England’s chief economist, Huw Pill, yesterday said the Bank would come back with a “significant monetary response”, in other words, higher interest rates. Some analysts are predicting house prices could now fall 10 per cent or even more next year.

There are few easy options facing the Prime Minister and her Chancellor — setting out a measured response to the crisis would be a good place to start.

Fingers point at Putin

After seismologists reported explosions near two Nord Stream pipelines, European commission president Ursula von der Leyen said “sabotage” was the cause of leaks in two areas deep below the Baltic Sea.

While there is not yet any conclusive evidence, suspicions have turned quickly to Vladimir Putin, who has restricted gas exports to Europe in retaliation against western sanctions following Russia’s invasion of Ukraine.

Deliberately exploding underwater pipelines would represent a further escalation, at a time when Moscow is carrying out sham referendums in the east of Ukraine in attempts to annex large swathes of territory.

Whoever is behind these explosions, it will only further serve to intensify European efforts to pivot away from Russian gas and toward cheaper renewable energy.

Bond Street on track

Bond Street station, described by rail chiefs as a “jewel in the crown” of the Elizabeth line, is set to open on October 24, Transport for London announced today.

In the coming weeks, lines from Reading, Heathrow and Shenfield will connect with the central tunnels, meaning no more long walks at Paddington. It is also set to become a seven-day-a-week service.

If Bond Street is TfL commissioner Andy Byford’s parting gift to the city, it will be well received.

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