ALEX BRUMMER: Truss confounds the experts and backs a British recovery

Truss confounds the experts: Doom-mongering analysts should be backing Britain’s recovery, not talking the country down, says ALEX BRUMMER

Sometimes you wonder what the highly paid City analysts are smoking. One can understand why think-tanks such as the Resolution Foundation revel in the UK’s energy woes, forever telling us how we could all end up in poverty.

Even The Archers, bastion of Land Rover driving, horse riding values, has cast members visiting a food bank.

But does it really behove the heavyweight investment banks?

Panic stations: But the UK's debt levels are modest when compared with G7 competitors including the US, Italy, Japan and even France

Panic stations: But the UK’s debt levels are modest when compared with G7 competitors including the US, Italy, Japan and even France

Citi was first out of the traps in mid-August predicting UK inflation could peak at 18 per cent this winter as energy prices soar.

Goldman Sachs, not to be outdone, went for an even bigger number of 22 per cent.

Amid the panic stations and the arrival of tax-cutting Liz Truss on Downing Street, the call to ‘dump sterling’ has been loud and clear.

Deutsche Bank (which knows about being a serial loss maker) joined the hue and cry, arguing that Britain faces a balance of payments crisis which could send sterling hurtling down by 30 per cent.

The German bank’s strategist cited a combination of aggressive fiscal spending, the energy shock and a slide in sterling as the doom loop which could lead to a repeat of 1976 when the country fell into the arms of the International Monetary Fund.

Maybe. But perhaps Deutsche hadn’t noticed that the UK’s debt levels are modest when compared with G7 competitors including the US, Italy, Japan and even France. 

That’s among the reasons that Truss feels able to throw a chunk of resources – at least £140billion – at flaying the cost of living crisis this winter.

The idea that the UK is uniquely experiencing some kind of currency meltdown also needs correction.

The pound’s fall against the dollar is nasty but so it that of the euro and the Japanese yen. As pertinent, sterling is well above the lows of 2016 and 2020 when measured against an index of the currencies of nations with which Britain trades. 

A widening current account deficit should start to self-correct as a result of a cheaper pound, which will help us to sell more goods and services overseas. A current account deficit only becomes a problem when it can’t be funded.

The UK is not Sri Lanka, which has been kept afloat with the help of Chinese and Indian creditors. We actually have no foreign sovereign debt. 

There is an endless appetite for British domestic debt, or gilts, from our friends in the Gulf (who incidentally are enthusiastic about British real estate) as well as Norway, Singapore and Hong Kong billionaires fleeing Beijing.

Overseas central bank holdings of gilts climbed to $580billion in the first quarter of the year. Domestic holdings are also strong, shored up by the toughened capital requirements for banks and insurers, which followed the financial crisis.

Rising yields, as the Bank of England toughens its anti-inflationary stance, and the terrific returns on Britain’s large issuance of inflation proofed bonds, also make gilts a fund managers favourite.

As Boris Johnson pointed out in his farewell address in front of Number 10, the UK is the most attractive venue in the world for tech and science inward investment outside the US.

The war in Ukraine and the energy crisis has caused inflation in Britain to soar and political upheaval has cast a pall over the country. 

Finally, the Government is taking a decisive step to freeze energy prices and take a big bite out of inflation. If that doesn’t improve business and consumer confidence and boost spending, then nothing will.

Scotch mist

Nicola Sturgeon is much admired for plain speaking.

But a friend who runs one of Britain’s biggest overseas relief operations was less than impressed when the Scottish First Minister warned that unless the energy price cap is frozen, the UK faces a ‘humanitarian crisis’.

He pointed out a humanitarian crisis is what is taking place in Pakistan where tens of thousands of people are sleeping rough after devastating floods. 

It is what has occurred in Ukraine where millions of refugees have fled the war zone and those left behind are foraging for food and shelter among the wreckage. 

And it is what is happening in Yemen, Darfur and other long- forgotten parts of the developing world.

Buying an extra cardigan and visiting a food bank when the universal credit and energy subsidy is exhausted doesn’t quite cut it.


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