Historical context: This October 2022 post refers to the market reaction to Liz Truss’s fiscal proposals. The central problem was a loss of investor confidence in how large tax reductions would be financed during a period of high inflation and rising interest rates. UK government borrowing costs surged, pension funds faced pressure from leveraged liability-driven investment strategies, and the Bank of England intervened in the gilt market. Truss resigned after a short premiership. The embedded commentary is a contemporary reaction, not a current assessment of British fiscal policy.
NYT:"The prime minister’s fatal miscalculation, experts said, was to believe that Britain could defy the gravity of the markets by passing sweeping tax cuts, without corresponding spending cuts, at a time when inflation is running in double digits and interest rates were rising."
— Ulrich Speck (@ulrichspeck) October 21, 2022