By Andy Bruce and Vincent Fraser
LONDON (Reuters) – This week’s slump in British financial assets accelerated a longer-run decline in history, This signals a return to a potentially unbearable loss of confidence among international investors in the UK.
Markets have been in turmoil since Finance Minister Quasi Kwaten outlined a new economic agenda on Friday. GBP/USD fell to a new all-time low of just over $1 on Monday. 03 UK government bonds suffered some of the worst losses since modern records began.
Analysts at major international banks say market moves suggest a sudden evaporation of investor confidence in the UK, which has been building for decades but has not been around since 2016 Investors have increasingly questioned Brexit since voting for Britain.
They expressed doubts about Kwarteng’s promise that improved growth would pay for the UK’s new high-spending, low-tax strategy, and feared the lack of detail on his commitment to fiscal responsibility.
Kwarteng said he will flesh out the plan in the November 23 budget statement.
Prime Minister Liz Truss said on Thursday that the recent turmoil mirrored movements in global markets.
While the U.S. dollar, which appreciated against other currencies, fell sharply and global government bond yields moved higher as the Fed pushed the U.S. to raise interest rates, the U.K. was an exception.
“Britain’s fiscal policy is now in the spotlight of the international investor community, and its loss of credibility will be difficult to fully recover anytime soon,” JPMorgan economist Alan Monks this week said earlier.
GBP is competing with JPY to be the worst performing G currency against USD so far this year, both down about 23%. GBP/EUR has been the weakest G20 currency for the past three months.
Chart: Major currencies against USD https://inew.news/wp-content/uploads/2022/09/localimages/chart_eikon.jpg6335bb60a0936.jpg
UK government debt has far underperformed German, French or US government debt, even taking into account currency fluctuations.
The gap between UK and German government bond yields widens to 20 One basis point earlier this week – widest since 1990.
Graph: UK Government Bond Yield Spread UK Government Bond Yield Spread https://inew.news/wp-content/uploads/2022/09/localimages/chart.png6335bb64e7fa4.png
For decades, the difference between the two bond yields has been seen as a measure of the UK’s inflation-fighting record versus low-inflation Germany, Germany Commonwealth Bank Central Bank UK is trying to follow suit.
The continued narrowing of interest rate spreads after the Bank of England 1997 became operationally independent from the government, has long been a major concern of UK Economic Watch policymakers Achievement.