This week seems like another crazy week for the UK economy. The UK government has yet again made another scandalous move and they have done a complete U-turn on their plans to abolish the 45% tax rate for people earning over £150,000 a year. Although the prime minister Liz Truss told the public that she will hold strong on the plans to abolish it, the pressure from the public has proved to be too much, with many saying that she has already lost the next election.
Chancellor Kwasi Kwarteng said that the plans to get rid of the 45% tax had become "a massive distraction on what was a strong package”. What does this mean for the economy? Well last week I told you how the pound crashed in response to the announcement of the mini-budget, but the pound shot back up to levels seen before this announcement as soon as the tax cut was revered. As for the faith in the UK government, it is pretty low. When the trust in the financial systems are low, investors loose faith and the stock market becomes incredibly volatile.
In other major news, Credit Suisse, one of the largest banks in the world which manages over £1 trillion (yes, trillion) has spiked fears that it is on the brink of collapse. This bank is part of the top 10 banks in the world which are also deemed “too big to fail” and if they did, it would send the world into a deep recession very similar to what happened with Lehman Brothers back in 2008 (the great financial crisis). It is unlikely however, that the governments around the world would let the bank collapse and will probably have to bail it out before that happens. In either case, a bailout will be bad for the economy as increased borrowing will hurt inflation down the line.
I made a short video which summarises the government U-turn if you would like to check that out.
Anyway, next week is another week and another newsletter, keep posted for more snippets.
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