Tier One Capital

By Paul Blight, Head of Wealth Management, Tier One Capital

With Chancellor Kwasi Kwarteng due to unveil a fiscal plan aimed at repairing the damage caused by his previous mini-budget as North East Times Magazine went to print, the nation was holding its breath.

Just how detrimental has the political flip flopping been for the UK’s economy, its businesses and personal finances?

Realising the fiscal gap that has been created must close either through cuts, probably to working age benefits or by backing down on tax cuts, it is unlikely the independent Office of Budget Responsibility will put much weight by the government’s claim that its plan will spur growth and solve the problem that way.

This is not because it is bound to fail, but just because there is too much uncertainty around it.

Unfortunately, the biggest losers from this process are borrowers. They have seen interest rates rise significantly and the obvious real-world effect of this is there for all to see. However, we should remember that Britain’s institutions were able to restore order quickly and we can hope that once it is clear that the market is demanding a more prudent path, confidence can be re-built. This should allow inflation to fall and interest rates may never get to the six percent level that is currently feared.

And do you believe the Government can salvage its reputation and the confidence of the financial community, in the short and medium-term?

The primary issue for the market is to balance the books, although it is the electorate that is likely to reject plans to do this through swinging cuts to benefits.

Without these spending cuts or an abandonment of tax cuts the sums simply don’t add up. So, for the markets, the government must change course. At this point the problem is political rather than market driven.