Tax and Fiscal Policy

The ‘mini-budget’ was not the root cause of market volatility

Matthew Lesh writes in The Telegraph

IEA Head of Public Policy Matthew Lesh wrote for The Daily Telegraph discussing market volatility in the aftermath of last Friday’s ‘mini-budget’.

Arguing that the fiscal statement was not the main cause of market instability, Matthew wrote:

“The markets were already aware of most of the detail prior to last Friday. The new policies announced on the day had relatively minor fiscal consequences. For example, the removal of 45p income tax rate made up just 3% of the package. It is thus implausible that additional government borrowing announced in the statement can fully explain the market movements.”

Matthew offered an alternative view, arguing:

“what spooked the markets, and caused the domino effect, is the realisation that interest rates are going up. This Bank’s actions and the Chancellor’s statement contributed to this realisation, but it is not the cause. Interest rates have been on an upwards trajectory for many months.”

The full article can be read here.