The UK’s great gift to the world through its very British omnicrisis of the past month — beyond the comedy value and schadenfreude — is to provide a useful reminder that in markets things can fall apart quickly, with grim real world consequences.
Some politicians have sought to blame the wild scenes in sterling and, more importantly, in gilts, on global factors, as if the toxic “mini” Budget played only a bit part. This notion is for the birds.
But one thread of this thinking does make sense, which is that the market impact of former chancellor Kwasi Kwarteng’s doomed fiscal plans was faster and deeper than it otherwise needed to be. This was for two reasons. One is that bond markets are creaking at the seams under the pressure of rapid interest rate rises and soaring inflation. The other is leverage, which has flourished in the long era of low, dull interest rates but can backfire quickly when the environment changes.