The Telegraph, September 30, Professor Patrick Minford
Volatility has stalked the UK markets this past week since the mini-Budget, much to the delight of the many opponents of the Truss-Kwarteng revolution. It is revealing how these critics have revelled in what they saw as the discomfiture of not just the new Government but also of the UK economy generally – as if the economy’s misfortunes give them joy in proving them right. This gloating has not been a pretty sight.
However, out of this volatility has come a useful rejuvenation of monetary policy, which previously failed to deliver the necessary potency to kill off inflation. Before last week it looked as if the Bank was a reluctant raiser of interest rates, partly due to too gloomy a view of growth – now revised up to 0.2 per cent in the second quarter – not quite the recession Andrew Bailey had talked up.
The Bank only raised interest rates by 0.5 per cent at its past meeting, instead of the 0.75 per cent generally felt to be necessary, and in line with actions by other central banks, notably the US Federal Reserve and the European Central Bank (ECB). As these two raced ahead, interest differentials against sterling rose and money flowed out of the UK accordingly, pushing the pound down. With the pound falling, the bond markets anticipated that the Bank would have to raise rates a lot and so long bond rates spiked in line with these expectations.
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