“Given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal programs at this stage, as it is important that fiscal policy does not work against the grain of the tide. monetary policy”. The message is clear ! Coming from an IMF press release, this call to order is in no way a remonstrance to an emerging country. A rare enough fact to be underlined, it is directly addressed to the United Kingdom, after the announcement by the Chancellor of the Exchequer of the new British budget which provides, among other things, for a general reduction in taxes and support in the face of rising energy prices.
From a global point of view, this sentence underlines the whole paradox of the situation facing governments: support measures aimed at preserving purchasing power are, unfortunately, counterproductive in the fight against inflation even if they remain necessary for the poorest. In the case of the United Kingdom, the IMF, like the rating agencies and the financial markets, sanctioned an unfunded plan which would increase the public deficit by 7% in 2023, including 1.5% for tax cuts alone, knowing that ome of these reductions concern the wealthiest classes. The financial markets have, in fact, massively sold British assets. The pound sterling collapsed against the dollar, to its lowest level since 1971 and the end of the Bretton Woods agreements which reinstated a floating exchange rate system. On the side of British rates, the rise was also impressive since the yields of 10-year government bonds rose by almost 130 bps, to reach a peak of around 4.60%. Direct consequence of this movement: pension funds had to respond to significant margin calls, putting the British financial system at risk, and thus forcing the central bank to intervene. While the BoE was in the midst of monetary tightening and was even preparing to sell assets from its balance sheet, it urgently decided to buy government bonds to calm the rise in rates. If the British government has since reversed the tax relief for the richest, these movements demonstrate in any case the current feverishness on the markets.
In terms of other news, the publication of inflation figures in Europe and the PCE in the United States confirms that the decline will be long. For the euro zone, inflation once again came out above expectations and reached double digits at 10% in September against 9.1% in August. Unlike in the United States, the anchorage in all parts of the economy is much less marked. Energy contributes, in fact, for more than 40% of the overall inflation figure in Europe, while the contribution of non-energy goods and services remains relatively low (respectively 5.6% and 4.3%). The fall in energy prices, over which the ECB's monetary policy has no control (except to create a deep recession), will necessarily go through a resolution of the Ukrainian conflict, the outcome of which is increasingly difficult to imagine. issue, especially after the annexation of four regions by Russia…
