UK financial crisis could turn into a global scare

IN the global financial system, no crisis stays local for too long. The pound and British bonds are substantial markets in their own rights but, like mortgage-backed securities in the 2008 financial crisis, their sway was not clear until they went into distress.

It goes without saying that Kwasi Kwarteng, the new UK Chancellor of the Exchequer, hasn’t had the smoothest of starts at his new job. With the backing of Prime Minister Liz Truss, he unveiled a “mini-budget” on Sep 23, vowing to slash taxes and regulation, funded by massive government borrowing to revive the economy out of its years-long slumber.

In a major U-turn on Monday (Oct 3), however, Truss surprisingly announced a reversal of plans to cut the highest rate of income tax, which had sparked a rebellion in her own party and plenty of turmoil in the financial markets.