Analogies of having one foot on the accelerator (No 11) and one foot on the brake (the Bank of England) succinctly emphasise the crisis the UK finds itself in.
In overnight currency trading, sterling was once again front and centre. Not helped by Chancellor Kwasi Kwarteng over the weekend when questioned on how his “pro-growth” tax cuts will be funded and failing to offer much in response other than more tax cuts, the markets are quickly deciding his fate. Analogies of having one foot on the accelerator (No 11) and one foot on the brake (the Bank of England (BoE)) succinctly emphasise the crisis the UK finds itself in. A reaction from the BoE will be more than likely this week if the pressure continues – currency intervention is seen as a last resort and unlikely given the low foreign reserves held. A shock additional rate hike to follow up last week’s 50 bps hike basically screams panic from the Old Lady but when sterling is showing the volatility levels normally associated with an emerging market currency, it would be wise to not bet against that likelihood. The rumour mongers are in overdrive in Westminster that letters are already being submitted by Tory MPs showing their disapproval and no-confidence with Prime Minister Liz Truss. We think UK risk assets still have further downside from here.
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