I don't want to disappoint those wanting a speedy denouement to current market events. But it's a long and repeated game. We have a floating currency which withstands day to day market pressures. London is one of the deepest capital markets in the world. 1/
Prices can and do adjust. Most mortgage holders have at least a 2 year fixed term; many have 5 year fixes. The Bank of England don't want to be accused of causing panic (see their recent statement). They have a reputation to preserve. 2/
So, current market pressures will play themselves out over weeks and months. At any point the "authorities" can take countervailing action though none of the options is good for growth. 3/
HMG has broken a cardinal rule: don't look like an outlier relative to other G7 countries. The markets now have sterling and gilts in its sights. There will be rallies followed by brief substantive lurches downwards. We probably haven't seen the bottom. 4/
Meanwhile, the UK will pay a high risk premium for the increased debt it is selling, making it all but impossible to live within spending plans, even before inflation. HMG is expecting public sector workers to take bigger real wage cuts even than in 1931, which led to mutiny 5/
This is an unsustainable equilibrium. Difficult times lie ahead. On the bright side, the British people and the governments they elect generally learn from policy errors...in the end. And so I expect greater realism and better leadership (sometime) in the future. #soundmoney
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