Trussonomics

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Senior economists have dismissed Liz Truss’s chances of reaching 2.5% economic growth in the next few years, as they said her government’s “guerrilla tactics” in last month’s mini-budget played a major role in spooking markets. Speaking to the Commons Treasury committee, the economists said the 2.5% growth target was “almost impossible”. The committee has launched its own investigation into the mini-budget in the absence of a formal forecast from the Office for Budget Responsibility.

The economists also dismissed the arguments of Jacob Rees-Mogg, the business secretary, that turmoil in pension funds had been caused by global factors alone, and warned that Kwasi Kwarteng, the chancellor, would need to unveil either spending cuts or tax increases to reassure markets in a promised statement on 31 October. Answering questions from the cross-party committee of MPs, Jagjit Chadha, the head of the National Institute of Economic and Social Research (NIESR) thinktank, said confidence had been badly undermined by “what can only be described as guerrilla tactics against our independent economic institutions over the summer: the Treasury, the Bank of England and the OBR”.

He said: “There was a sense in which there was undermining of the cooperative arrangements that we had between the monetary and financial institutions, that theoretically and in practice have led to lower interest rates and lower deficits than would otherwise have to be the case.

Mini-budget will not lead to promised growth, leading economists tell MPs | Mini-budget 2022 | The Guardian

Although the chancellor U-turned on plans to abolish the 45p rate of income tax on higher earners, he moved ahead on Tuesday with a cut in taxes on dividends worth £600m for wealthy investors. Struggling households will however be forced to wait until the end of October to find out whether the government will give the green light to a rise in welfare payments in line with inflation, or whether they will be subject to a real-terms cut amid the cost of living crisis... 

The International Monetary Fund has added to pressure on Liz Truss’ government to U-turn on unfunded tax cuts announced in last month’s mini-budget, saying changes in policy would help calm jittery financial markets. On a day when fresh action by the UK central bank failed to halt the upward move in government borrowing costs, the Washington-based IMF said a shift in policy from Truss and her chancellor would “change the trajectory” of interest rates. The IMF said the Bank and the Treasury were “like two people trying to steer a car in different directions” as it highlighted the turbulence in markets caused by the chancellor’s 23 September package. “That’s not going to work very well,” said the Pierre-Olivier Gourinchas, the IMF’s economic counsellor.

IMF tells Truss to change tax policy to calm frenzied markets | Mini-budget 2022 | The Guardian

• Not even de BoE can stem the bloodbath in Guilts, and that program is going to stop at the end of the week..
  
• So, Truss can't cut spending, they can't do a U-turn on their tax cuts, and with the bond vigilantes at their door, they can't increase borrowing all that much, if any. Something will have to give..
  
• Longer-term, they could be lucky though as gas prices have come down so the huge price cap program might not be as fiscally damaging or even cost nothing at all.
  
• It could also be that expansionary fiscal policy's timing is fortuitous, with economic growth rapidly moving down