INTERNATIONAL financiers, hedge-funds and speculators took just one day to savage Labour Chancellor Rachel Reeves’ first budget on Wednesday with interest rates on UK 10-year bonds jumping to 4.5 per cent and the pound sterling falling 1.3 per cent against the dollar.
The fear is of another financial disaster, a repeat of the near collapse of the British economy under former Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng. They planned $45bn of unfunded tax cuts for the rich and were collapsed by the banks in days.
Chancellor Rachel Reeves’ plans for ‘growing the British economy’ by borrowing and spending billions for investment are already coming apart at the seams.
Financial Investors are betting that the pound will plunge, says Barclays, with traders building up short positions against the pound following the Reeves Budget.
Hedge-funds and assets managers are increasing their bets that the price of the pound will decline in reaction to the Chancellor’s tax raising plans. This is according to Mimi Rushton, global head of currency distribution at Barclays.
Barclays said that investors are now holding more short bets than long positions against the currency, where traders buy sterling in anticipation of its value rising.
Investors now hold more short bets against the pound than long term bets following the Budget, according to Barclays.
Bond experts like Marc Ostwald, at ADM brokers, say that ‘When they looked at it in the cold light of day, they realised that the Budget won’t do what it says on the can.’ The taxes crush small companies and can’t catalyse growth and investment. They just raise inflation.
‘There is a whiff of worry about the £300bn of debt issuance planned for this fiscal year, though not yet a worry about the integrity of UK sovereign debt itself. It is not a Kwarteng red card, but it is a Rachel Reeves yellow card,’ said Ostwald.
Recalling the catastrophic 2008 financial crisis, ‘the Bank of England can always backstop the gilt market with electronic money in extremis. That is the beauty of borrowing in your own currency, backed by your own sovereign lender-of-last resort’, commented the Daily Telegraph’s economics editor.
The UK economy is now described as a ‘stagnation nation’ of low growth where the steel industry has just closed down its last blast furnaces in Wales and Scunthorpe, where licences for new North sea oil fields have stopped, and where the domestic oil refinery at Grangemouth has closed, with the result of a greater trade deficit.
Already, the Office for Budget Responsibility (OBR) says the Chancellor’s front-loaded stimulation of extra day-to-day spending – 8per cent over two years in real terms – will cause the economy to be unable to meet production demands and overheat. This short term spending will inevitably cause higher inflation, higher interest rates and higher mortgage interest payments.
In fact the OBR rubbished Reeves’ budget predictions, stating that, ‘these margins are a small fraction of the risks around the central forecast’, which depends crucially on highly uncertain judgements on the paths for productivity, inactivity, net migration, interest rates and inflation.’
‘Britain risks lurching from an illusory boomlet to a very real bust in three years, as the Chancellor is forced to tighten fiscal policy violently to meet her “stability rule”.’
This ‘violent’ tightening will involve huge attacks on trade union rights, the privatisation of the NHS, and massive attacks on municipal councils and council tax rises. Already we have a number of councils around the country going bankrupt and sacking staff and cutting wages.
Over 750 NHS staff are currently striking at St. Thomas’ Hospital in central London, against outsourcing under a Labour government and mass sackings. ‘Greater efficiency’ savings and a greater privatisation of the NHS are government priorities.’
Continuous press comments say that the UK cannot grow without more people in-work; and without welfare ‘reforms’, ie savage cuts, there can be no serious growth. Hence the Labour government’s push to get long-term sick and disabled people off benefits to force them to work.
Reeves’ budget is already coming apart due to the huge economic debt crisis engulfing the global economy. Labour is attempting to rescue the UK capitalist economy by smashing the Welfare State and the trade unions, and continuing its support for imperialist wars in Ukraine and Palestine and the Middle-east.
The trade union leaders are too frightened to lift even a finger. Now is the time to build the WRP and the YS rapidly to lead the much-needed British Socialist Revolution! There is not a moment to lose!