Gilt yield increases & GBP weakness a rational reaction to clear market of >£60bn new issuance required to fund #MiniBudget in 22/23. 3 areas HMT staff will be briefing Chancellor about over coming months: 1) Market reaction; 2) Intergenerational impact; 3) Behavioural response
Market reaction determines gross cost of these measures as they are entirely funded, initially, by borrowing. As Gilt yields rise there is a double squeeze - potential APF losses, & the Gilt refinancing cycle. Weak GBP will also raise RPI interest on £600bn of index-linked Gilts
Intergenerational transfers. #minibudget takes consumption from future to fund resources today. Given what we know about today's beneficiaries (older demographics) then analysis should assess degree to which fiscal activism (contentious macro) reinforces generational inequality
Finally, behavioural response. The success or failure of this package does not hinge on trickledown. It is encouraging those with additional resources/fewer regulatory hurdles to change behaviour & avoid big deadweight loss. For⬆️trend growth, behavioural change is the catalyst
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