All the big moves on the foreign exchange markets, with the Bank of England (BoE) at odds with the Chancellor, has just made things worse… But, who is to blame? 

The International Monetary Fund (IMF) has come out and criticised the UK for its policy, saying it is confused and that the recent fiscal announcements (tax and spending in the Budget) are not balanced… and they are right! 

Last week I said that in many ways, the Budget was risky but despite it flying in the face of traditional monetary economics, it could be the only path out. And, despite the previous paragraph, that’s also right! 

The problem is a number of classic errors and arrogance. 

The politicians had a decent idea, but then politicised it and sweetened it too much by making the headline tax cuts 45%-40%. This is actually not a big cost economically, but crucially, it sends out a message that does not fit the required narrative. 

It says “We are here for the rich, and who cares about the poor!”. 

This was foolish, and opened the door to criticism and division… Not clever. 

The politicians were also too arrogant – they kept it secret, did not brief the BoE, and did not publish the economic forecasts. They were too keen to be seen as a tax cutting government, and it is this arrogance that is the undoing. It sends out a message that they will flagrantly ignore the other big side of economic control, and simply do what they want! 

So, we have the BoE doing one thing, and the government doing another. The result = fiscal policy and monetary policy (interest rates) working against each other. That leads to a total lack of confidence in the UK, and in turn, the turmoil we find ourselves in now… 

So, who is to blame? 

Mainly the politicians. Not necessarily for the basic policy, but for the arrogant and egotistical way they went about it… 

Secondly, the professional bankers and economists for holding onto their independence and not recognising that by stating so strongly that they disagree (6% interest rates are coming), they virtually condemn the Government policy to fail. 

What happens now? 

Both parties must come together to agree on a coordinated policy. Both must accept that scoring points is not in the national interest. They work for the people of this country, and must do it together.

To achieve this, both sides will have to eat a bit of humble pie and back down a bit! 

The one thing that is terrible for a country economically, is not necessarily the policy, but confidence! The Government and the BoE must come together and show the world that they are in control to get some international confidence back. 

This is very tricky, because to be frank, they have both screwed it up! 

The next few days will be very politically and economically interesting. And hopefully, things will start to come together…