A weaker pound does not spell disaster for Britain
Borrowing costs are rising, but the market has not damned the new government yet
Fretting about sound money is unfashionable in today’s Conservative Party. But for those who still do, the nightmare scenario is clear. A profligate government spends more than it taxes, borrowing from the bond market to cover the difference. Gradually, the national debt builds up. As interest payments rise and the government gets no thriftier, investors worry about getting their money back. Then, suddenly, they no longer want to lend enough to cover the deficit. The currency crashes, and Britain is forced to ask the imf for a bail-out, just as in 1976.
Some fear a repeat is about to unfold. Liz Truss, Britain’s new prime minister, spent the summer making expensive promises. Tot them up, from higher defence spending to lower payroll and corporation taxes, and they would increase yearly government borrowing by 1.8% of gdp. Much more borrowing is on the way: on September 8th Ms Truss unveiled a two-year price-guarantee scheme that could cost over £100bn ($115bn, or 4.3% of gdp) to help households and businesses cope with soaring energy bills.
This article appeared in the Britain section of the print edition under the headline "Crisis? What crisis?"
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