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Remember the sterling crisis and how Britain was a doomed nation when the pound rushed to parity after the mini budget? Well, forget it.
Currency markets are notoriously fickle. As daily leaks from Downing Street about the size of the fiscal task awaiting the Chancellor in tomorrow’s budget have emerged, the pound has rebounded. It reached $1.20 in the latest trade for the first time since mid-August.
The Bears of the UK warnings are starting to seem old, misleading and stupid. Bank of America strategists predict UK inflation will approach 20 percent next year.
Balancing act: Daily leaks from Downing Street have hinted at the size of the fiscal task ahead of Chancellor Jeremy Hunt (pictured)
Former US Treasury Secretary Lawrence Summers claimed the UK had lost “sovereign credibility”.
Disgruntled Guernsey private equity baron Guy Hands stated that Britain may need a bailout from the International Monetary Fund.
The speed with which the Truss-Kwarteng government was knocked out and another government brought in speaks volumes about the resilience of British democracy and the flexibility of economic decision-making.
The pound has risen by 4 percent in a short period of time and enthusiasts of gilt-edged shares are looking forward to good profits.
There is a growing consensus in the wider financial community that the negativity about inflation and interest rates is exaggerated.
Morgan Stanley chairman James Gorman is one of the optimists about the outlook. His big number for the United States next year is four.
That is 4 percent for interest, 4 percent for inflation and 4 percent for unemployment in 2023.
According to him, the magnitude of the Covid-19 and energy shocks does not resemble the earthquake in the financial crisis.
If the US does fall into a technical recession, it will be mild. And while the UK doesn’t always follow the US economy, trade and financial connections often do.
The only hesitation is that Chancellor Jeremy Hunt, in his bid to establish Britain’s fiscal fairness, will overdo things in his bid to close the £70bn fiscal gap with outrageous tax increases.
By tampering with income and corporate tax regimes, he risks undermining confidence, growth and entrepreneurship.
It is a travesty that Liz Truss and Kwasi Kwarteng were so inept at presenting their growth plans that lower taxes, investment zones and other expansion-friendly measures are off the table.
It is crucial that Hunt can illuminate a sort of vision and optimism for UK plc amid the gloomy tones.
Proposals to limit research and development tax credits for smaller companies seem like a foolish mistake. SMEs and start-ups are the next generation of larger companies and need incentives that are not a waste of money and desperation.
Hunt has won over the markets. Now he must revive the aspirations of consumers and businesses.
Defense measures
Everyone in finance and investment is looking to get wrapped up in the environmental, social and governance (ESG) agenda these days. How meaningful are the judgments they make?
Tech stocks are a firm favorite of some ESG funds. But their power consumption to drive their algorithms is huge, making them huge emitters.
Categorized as the evil of fossil fuels and brushed aside as a sponsor of the British Museum, BP is arguably Britain’s largest investor in renewables and green technology.
For many years British defense and aerospace engineers were regarded as corporate pariahs. The war against Ukraine shows how important they are to the preservation of British, European and global social democracies.
BAE, owner of the UK’s main naval, fighter and land defense platforms, has been ignored by investors.
The reality is that order books are overflowing and revenues have just been upgraded due to global demand for everything it does, ranging from high-tech avionics for the Pentagon to new ships for the Royal Navy and air defense equipment for Kiev.
Blocking investments on ESG grounds is a misplaced vanity.
Wrong numbers
CEO Nick Read’s efforts to boost Vodafone through the sale of half his stake in the Vantage towers business and a merger with rival Three don’t seem to be getting much attention from investors.
After a cut in free cash flow earnings for the year, Reuters quotes an investor as saying the mobile pioneer is “too complex, too slow and too fat.”
If stocks are any guide, patience with Read’s leadership is fading.
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