Here’s our not-so-mini guide to what’s going on with the economy since the not-so-mini budget announced by Kwasi Kwarteng on Friday.
It comes as the Bank of England launched a temporary bond-buying programme as part of emergency action to prevent “material risk” to UK financial stability.
What did the chancellor announce?
The biggest tax cuts for 50 years, with a stamp duty cut, a hike in National Insurance scrapped and a planned corporation tax rise shelved, and there was the multi-billion-pound help for households and businesses over energy bills.
There was also a cut in the basic rate of income tax being brought forward a year to April 2023 – and then the rabbit out of the hat, the 45p top rate of tax ditched, which benefits those earning more than £150,000.
All this to be paid for with additional government borrowing.
What was his idea?
These measures, along with reducing red tape on planning laws, adding red tape to make industrial action harder, and ditching the EU’s cap on bankers’ bonuses, are designed to stimulate growth of 2.5% in the medium term.
It has been labelled “Trussonomics” but this kind of policy is better known as “trickle-down economics”, the idea being that if the rich, and wealthy companies, are taxed less, they’ll invest more in the UK and, bluntly, the money will trickle down to those on lower incomes.
Tax cuts will therefore pay for themselves, so the theory goes.
Tax cuts? I like the sound of that – why has the reaction been so bad?
Mr Kwarteng’s announcement was not called a budget because it’s only a budget if the Office for Budget Responsibility provides costings and forecasts to go with it.
It is this lack of detail that has spooked markets.
There is also a belief that the chancellor’s measures could raise already-spiralling inflation (the rate at which prices are rising, which currently stands at around 9.9%) at a time when the Bank of England is trying to bring it down (by raising interest rates).
So the pound fell – what does that mean?
When foreign exchange markets lose confidence in a country, the value of that country’s currency begins to plummet.
Falls on Friday continued on Monday – with the value of the pound sinking from $1.12 to a record low of $1.03. It has steadied now to around $1.06.
Ok, what does this mean for me?
A weaker pound means price rises for UK consumers who buy foreign goods – which is just about everyone.
The UK imports more than 50% of its food – so the cost of coffee, bananas, pasta and everything else could go up.
Fuel could rise, too, as gas is priced in dollars.
A weak pound also means money won’t go as far if you travel to the US or countries that use the US dollar.