Brexit ideology lies behind UK market roadmap

That is, the Bank of England cannot raise interest rates any further. No, wait, it’s really all about Fed tightening and dollar strength. The more self-critical Tories can look to the over-increasing and disdainful thinking of public finances in the prime minister’s statement, but there are plenty of scapegoats for the market slide that has seen the pound Britain fell and gold-plated production jumped.

However, these proximate causes are merely the anvil with which the UK economy is being crushed. There is one thing that is fundamentally inexplicable: the economic damage caused by Brexit, more specifically the fictional economics of its hardline Conservative reality. The Tories, naturally, did not want to accept that their signature policy is making the country poorer. Labor fears alienation Voters leave. The proof, though, is that the public is participating in the scoring.

The markets mostly reacted to a bad financial report from Kwasi Kwarteng. But both the prime minister’s decision and the backlash are the culmination of actions and attitudes rooted in Brexit authoritarianism; from the loss of market access, continued confrontation with the EU, excessive trade deals that add little to GDP, the continued attack on British institutions and the onslaught of the prime minister. General Liz Truss on economic orthodoxy. Investors got the message. England is not the place to bet it was.

Kwarteng’s statement last week was just one manifestation of the elevation of ideology over economics. The desperate pursuit of unorthodox growth strategies fueled in part by the 4% yield hit over 15 years, which has always been attributed to Brexit agree.

So the UK economy is exhibiting the comorbidities of a badly damaged Brexit, which weakens its ability to withstand shocks. When the market took a turn for the worse last week, few could reassure them.

The warnings were there. The Tories are right that dollar strength has depreciated most currencies (although the drop in sterling was steep) but it has to be placed in the broader context of the pound’s slide UK since Brexit. Only with the UK’s early recovery from the pandemic will the pound come close to where it enjoyed in the months leading up to the Brexit vote. This has deepened the inflation hole. In June, Andrew Bailey, Governor of the Bank of England, warned that the economy “weakened earlier and somewhat more than others”. Labor shortages caused by Brexit and rising food prices have added pressure.

Key sectors have been left out, although at least there are signs of a more positive attitude towards financial services. UK scientists face ejection from EU’s Horizon Project in retaliation for the government’s tough stance on the Northern Ireland protocol.

Last week’s departure from standards of fiscal prudence should not be seen in isolation but as part of the economic disdain that has plagued the Conservatives since the 2016 referendum. Kwarteng’s is the logical endpoint of the tax-cutting strategy that free-market Brexiteers have demanded. But since external shocks and partisan politics have prevented spending cuts alongside this strategy, it has become easier to declare an end to economic orthodoxy.

This is what happens if you keep telling yourself that everyone else is wrong. Similarly, if you spend six years disrupting the institutions that underlie political stability, illegally suspending parliament, abducting the judiciary, and eroding checks and balances, , you wouldn’t be surprised if investors start to worry. Even now, the Tories want to blame the central bank for not doing more to protect the country from the government’s financial loss. The comparisons with Italy or Turkey are overblown, but the worry is that they are even entertaining.

One good thing for the Tories is that Labour is afraid of the matter. Leaders tiptoed around it at this week’s party conference, enjoying generalities about “making Brexit work” and examples of significant but incremental changes. Keir Starmer’s sole priority here is to fend off Tory attacks by pledging not to undermine immigration controls by re-entering the single market. With 17 poll leads and a self-destructive government, why take the risk when there are easier targets?

Even so, what was once a slowing economic hole is now an audible hiss. Last week made voters, especially 8.3 million mortgagor, rather than receptive to the argument that the Tories mismanaged the economy. The vandalism of Brexit should be at the heart of that criticism. (Many would say it could just be buggy, but some versions are obviously worse than others).

Truss was left with options that couldn’t have been better because she won a leadership position that promised to double down on Brexit and confront economic orthodoxy. While she should ease some tax cuts, the instinct would be to offer unpopular spending cuts.

Another small step would be to settle shipments over the Northern Ireland protocol. It is not a panacea for public finances – which still requires a more immediate response – but it could change the musical mood, ease fears of trade disputes and show the UK are prioritizing economic stability again.

But the Tories are now in bunker mode, listening only to those they have agreed to. We are now tracking the real-time fall of the governing party. It will be a hell of a show, though sadly tickets will be expensive.

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