The UK government has created a “loop of doom” that threatens the entire financial system and it must act urgently, the CEO of a leading independent financial advisory and fintech has warned.
“Markets now know where the weakness lies. Intervention paints a target on the back of the body that intervenes,” deVere Group chief executive Nigel Green said as Prime Minister Liz Truss made her first media appearance since the mini-budget last week which sent financial markets into meltdown.
“Only a credible commitment by the government to fiscal sustainability, either through reversing tax cuts or – marginally more palatable politically – spending cuts, can enable the government to survive,” Green said.
“If they don’t budge, they will have blown up the UK mortgage market, UK pensions, amongst others, and eventually could spread to impact the wider global financial markets which themselves are sitting on thin ice as liquidity disappears.”
Green said that time is of the essence, as Liz Truss and her Chancellor Kwasi Kwarteng have created a loop of doom.
“They must act urgently,” he said, after the Bank of England said it will step in to buy bonds on “whatever scale is necessary” to try and calm markets.
“The bank’s announcement is the right thing to do, of course, but it seems ludicrous that it has had to act in this way.
“The bank’s been hitting the brakes whilst the government has been hitting the accelerator. The result in motor-racing terms? A doughnut. This is an economic doughnut.”
The International Monetary Fund has also openly attacked the UK government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis.
In an unusually outspoken statement, the IMF said the proposal was likely to increase inequality and add to pressures pushing up prices.
The deVere CEO concluded that the UK’s and the wider global financial system could collapse if the plans, or at least some of them, set out by Mr Kwarteng last Friday, are not modified as a matter of utmost urgency.
“Contagion is real, as history teaches us.”