Liz Truss’s mini-Budget is still damaging Britain’s economy nearly four years later, Goldman Sachs has claimed.
A toxic combination of high inflation and low growth has plagued the UK more than other advanced economies, and the Wall Street bank said the fallout from Ms Truss’s fiscal statement was to blame.
Ms Truss’s announced £45bn in unfunded and unaudited tax cuts in September 2022, triggering a crisis in the bond markets as investors panicked over the sustainability of UK government debt and whether inflation could be kept under control.
Yields on government bonds rocketed as a result, nearly pushing some pension funds to the brink of collapse and forcing an intervention from the Bank of England.
Gilts, as UK government bonds are known, have underperformed compared to other G10 nations in the years since then.
Goldman Sachs said this was because investors were still wary of a repeat of the 2022 episode. The result is higher government borrowing costs and massive extra costs for the public purse.
Higher gilt yields usually lead to a rise in the value of the pound but this link has been broken since the mini-Budget, Goldman Sachs said, worsening the investment case for foreign investors in Britain.
“The gilt turmoil has certainly been the main catalyst,” analysts wrote.
Jitters about tax changes in Britain have also increased. A Goldman Sachs index shows gilt yield sensitivity to changes in fiscal policy has “increased substantially” since the mini-Budget crisis.
Bank ‘keeps trying to scapegoat Truss’
A source close to Ms Truss hit back at the suggestion the former prime minister was to blame for the crisis that followed her mini-Budget.
They said: “Even though the Bank of England has itself admitted two thirds of the market spike in 2022 was down to its failures, the economic establishment keep trying to scapegoat Liz Truss.
“They don’t want to admit that their globalist policies like net zero, mass migration and Keynesian economics have completely failed in the UK and Europe. The same people spend huge amounts of their time and energy attacking President Trump and anyone else who seeks to take on the status quo.
“The fact is that any continuing impact from what occurred in 2022 is more likely to emanate from a lack of confidence in the very same Bank and Treasury establishment who remain in place to this day.”
The Liz Truss mini-Budget episode should be a warning for Donald Trump, Goldman Sachs said.
The US president’s tariff policies have triggered huge swings in US Treasury markets and the dollar, while investors are growing increasingly concerned about his budget.