The chancellor doesn’t seem particularly to care
of $1.035 . Later that day ten-year gilt yields had reached 4.3%, over one percentage point higher than a week earlier. The gyrations were so extreme that Andrew Bailey, the Bank of England’s governor, published a statement confirming that policymakers were “monitoring developments in financial markets very closely”.
Investors’ anxiety reflected scepticism that the government’s reforms would turbocharge growth and generate enough revenue to put the public finances on a sustainable path. Suggestions over the weekend that the government had yet more tax cuts in the works did nothing to help its credibility.
A weaker pound means that the cost of buying imports is higher. Samuel Tombs of Pantheon Macroeconomics, a consultancy, calculates that the decline in the value of sterling since July points to a 1.7% increase in the price level in the long term and a 0.5 percentage point increase ininflation in 2024. Although in theory a weaker pound could provide a fillip to British exporters, in practice this effect has been disappointing in the past.
Businesses will also be affected. The Bank of England estimated in August that, after taking into account the effects of higher energy prices, funding costs would have to rise to around 7.75% for pressure on corporate balance-sheets to be as widespread as it was at the previous historical peak in 2001, when 62% of companies were vulnerable to repayment difficulties. According to theinvestment-grade corporate-bond index, yields on September 26th were 6.4%.