The pound has extended losses and is trading 1.4% lower versus the dollar at $1.1169 after news of chancellor’s sacking; Royal Mail to cut up to 10,000 jobs
Credit Suisse’s head of UK economics, Sonali Punhani, has warned that the UK’s recession could be worse than expected because of the recent market turmoil.
• Owing to the market turmoil that has followed the announcement of the mini-budget, risks are rising that the recession in the UK is deeper than we forecast. If the market moves are sustained or worsened, they can offset the impact of the tax cuts and increase the depth of the recession through much higher mortgage costs and currency-led inflation.
• Real incomes could be squeezed further by 1-1.5% in 2023 if the recent market moves are sustained, which is likely to add downside risks to our growth forecast of -0.2% in 2023.
The FTSE100 reacted positively yesterday, and [did] the same again today, on news that the government may finally be heeding warnings and is considering a reversal on more of its planned tax cuts.
Anxiety around the enormous funding gap needed to pay for the cuts has triggered sharp market turmoil the UK had hoped not to see for a long while following the pandemic. Chancellor Kwasi Kwarteng won’t be blind to the effect flying home from his Washington DC trip early will have – there is allegedly no precedent for a chancellor returning early from the IMF event for personal reasons.
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