Europe in Crisis with Lyn Alden - WBD565

Lyn Alden is a macroeconomist and investment strategist. In this
interview, we discuss the recent market turmoil that followed the
UK government's proposed tax cuts. Why did the market reaction
nearly result in the collapse of UK pension funds? What are the
underlying issues? Where are we heading?


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Liz Truss became the UK’s new Prime Minister on the 6th of
September. She immediately worked to develop a financial package
that would protect people from unprecedented hikes in energy
prices. At the same time, Truss was keen to implement a long-held
economic ideology predicated on stimulating growth through low
taxes and reduced regulatory burdens.


A political judgement was made to prioritise promulgating tax
cuts ahead of any assessment of what spending cuts would be
required to balance the budget; a huge emergency fiscal package
was being combined with reductions in revenue. In the absence of
any other information, the market took fright: the government
wasn’t deemed to be in control of a burgeoning debt pile.


Immediately following the government announcement, the bond
interest rates rose sharply whilst the British pound dropped
precipitously. Despite government protests that the market
response was due to external factors, the messaging was clear:
the UK economy is becoming dangerously unbalanced. Within days
the Bank of England had to react and start a £65 billion purchase
programme to save a number of pension funds from collapse.


So, what actually happened? Experts, commentators and politicians
have argued about the causes and outlook, whilst mortgage rates
have rocketed such that emergency payments for energy costs will
be dwarfed by additional mortgage payments. Is the UK economy at
risk? If so, why, and what is the outlook? Does history teach us
anything? And, fundamentally, can debt be brought back under
control?