Investors are inclined to regard the UK Conservative Party as a “doomsday cult”, a top analyst said today.
Paul Donovan, chief economist of UBS Global Wealth Management, launched a blistering attack on the government’s plans.
It comes as the pound touched a record low against the dollar as markets reacted to chancellor Kwasi Kwarteng’s mini budget - which included the UK’s biggest tax cuts in 50 years.
There are concerns that inflation will remain high and force the Bank of England to raise interest rates even further.
In his daily update, Donovan said: “The global signals from the UK’s mini-budget matter.
“Modern monetary theory has been taken into a corner by the bond markets and beaten up.
“Advanced economy bond yields are not supposed to soar the way UK gilt yields rose.
“This also reminds investors that modern politics produces parties that are more extreme than either the voter or the investor consensus.
“Investors seem inclined to regard the UK Conservative Party as a doomsday cult.”
He also knocked down prime minister Liz Truss’s tax cutting plans, saying they were “unlikely” to give the UK a meaningful medium-term boost.
“A short-term ‘sugar high’ is likely but may be limited,” he added.
And on Kwarteng’s surprise slash on income tax for the country’s highest earners, Donovan said a high earner’s rational response would be to increase savings in anticipation of future tax increases.
The controversial decision will benefit 629,000 earners on salaries higher than £150,000 - saving them on average £10,000 a year.
Kwarteng reversed the national insurance hike, scrapped the huge planned increase in corporation tax and controversially lifted the cap on bankers’ bonuses.
Shadow chancellor Rachel Reeves accused Kwarteng and Truss of recklessly gambling with the UK’s finances.
The Labour MP told Times Radio: “Instead of blaming everybody else, the chancellor and the prime minister, instead of behaving like two gamblers in a casino chasing a losing run, they should be mindful of the reaction not just on the financial markets but also of the public.”
Kwarteng has previously brushed off questions about the markets’ reaction to his mini-budget which will warrant more than £70 billion of increased borrowing.
He claimed on Sunday the cuts “favour people right across the income scale” amid accusations they mainly help the rich.
Related...
Plummeting Pound Becomes Fresh Fodder For Jokes At Tories' Expense
Truss And Kwarteng Are 'Like Two Gamblers In A Casino' As Pound Plunges, Says Rachel Reeves
'Are You Just Going To Ignore Those Figures?' Kay Burley Lays Into Minister Over Mini-Budget
The Pound Has Plunged To A Record Low After The Mini-Budget. Here's What It Means For You
How The Battle With Trade Unions Is The Next Front In The Tories' Culture War