There is a very real contradiction that has developed between monetary and fiscal policies in large parts of the world and it is that contradiction which the UK experience highlighted and which manifested itself in a plunging sterling exchange rate and soaring UK bond yields.
The Bank of England was forced to intervene, committing to buy £65 billion ($112 billion) of UK bonds in a temporary reversion to quantitative easing only days before it was scheduled to start quantitative tightening – instead of buying bonds it was planning to start allowing its bond holdings to run down.
In that light, the poorly-conceived UK tax cuts could be seen as a trigger event and also as an illustration of the volatility and risks confronting policymakers and investors.
The Truss government’s decision to announce massive unfunded tax cuts as the Bank of England was about to embark on a major tightening of monetary policy to fight inflation was…
