The pound fell to $1.033 in early trading this morning before rebounding to the still-ahistorical $1.08 by mid-day:
Chancellor of the Exchequer Rishi Sunak hasn't had the job for three weeks and he's already tanked British currency markets. The Guardian's economics editor Larry Elliott calls the mini-budget that started this catastrophe a "schoolboy error:"
Part of the story of the pound’s weakness is a function of dollar strength but that does not explain why sterling has fallen so rapidly since the end of last week. There are three UK-related factors behind the fall.
First, once a currency hits the skids it is hard to stop it. Momentum trading took over in the aftermath of Kwasi Kwarteng’s mini-budget and it has proved hard to halt.
Second, Kwarteng committed a schoolboy error by pledging further tax cuts in a full budget planned for later this year. If the markets are worried about the state of the government’s finances and the increase in borrowing needed to fund your plans, it is not the wisest course of action to add to those concerns. Kwarteng’s inexperience has been exposed.
Third, the financial markets don’t really know how the Bank of England will respond to the events of the past three days. Threadneedle Street raised interest rates by half a point last Thursday but there has been speculation of an emergency meeting of the Bank’s monetary policy committee as early as Monday.
The Economist expands:
Five-year British yields have risen from 1.5% at the beginning of August to above 4.5% now: an increase of about one percentage point in just two days.
That combination of rising yields and a falling currency has prompted discussions of a broader crisis of confidence in Britain’s economy and its assets. The government’s tax cuts will mean a growing budget deficit and higher public-debt levels in the future. Britain’s current-account deficit reached 8.3% of gdp in the first three months of the year, the deepest in modern history, driven by surging energy prices. A gaping current-account deficit is something that often worries those who invest in developing economies.
But in other ways Britain is an unusual candidate for a currency crisis. Its exchange rate is flexible, meaning that there is no link to another currency, as was the case when Britain was forced out of the European Exchange Rate Mechanism in 1992. Its financial markets are deep and sophisticated. It has minimal debt denominated in foreign currencies, and its central bank is independent from the government.
The most simple explanation for the sell-off, then, is that investors do not believe that the government’s tax cuts will lead to the real economic growth Mr Kwarteng wants. Instead, they foresee higher inflation that the Bank of England will be unwilling to fully offset with interest-rate increases. Currency analysts at the Bank of America suggest that a combination of Britain’s changing fiscal stance and the long-running effects of its decision to leave the European Union have led to a profound rethink of the pound by investors. That leaves the currency more vulnerable in the years ahead.
I was joking with friends that I should hop over there to finally get a pint and a bap for under $10, until one of them pointed out that it would be a $1210 pint and bap given airfares and hotel costs. Ah, well. It doesn't look like the pound will recover before the end of the year, so maybe Christmas in London again? Any bets on whether PM Liz Truss will have to call an election before then?
UK Chancellor of the Exchequer (equivalent to the US Treasury Secretary) Kwasi Kwarteng (Cons.) announced significant tax cuts along with £72 billion in new spending to forestall higher energy bills this winter. Unfortunately, this massive stimulus comes during some of the highest inflation the UK has seen in a generation, estimated to be nearly 10% annualized as of this week.
Consequence? This, as of just a few minutes ago:
Sterling hasn't gone below $1.10 since 1985, and it probably won't again during my lifetime.
The Economist has no confidence in the scheme:
[Prime Minister Liz] Truss’s attempt to emulate the Gipper’s success is doomed. To see why, consider the currency markets. Reaganomics was accompanied by a strengthening dollar. So were Donald Trump’s tax cuts in 2018, which also happened alongside monetary tightening.
In Britain, though, the pound has slumped by 16% against the dollar in 2022.
As a result, the BOE will get no help from currency markets as it offsets Ms Truss’s fiscal stimulus with tighter monetary policy. Instead more expensive imports are boosting inflation. That is a big headache for an economy that depends on trade as much as Britain’s does.
Ms Truss’s cheerleaders seem to have read only the first chapter of the history of Reaganomics. The programme’s early record was mixed. The tax cuts did not stop a deep recession, yet by March 1984 annual inflation had risen back to 4.8% and America’s ten-year bond yield was over 12%, reflecting fears of another upward spiral in prices. Inflation was anchored only after Congress had raised taxes. By 1987 America’s budget, excluding interest payments, was nearly balanced. By 1993 Congress had raised taxes by almost as much as it had cut them in 1981. If Britain’s government does not correct its course in the same way, the result will be more conflict between monetary and fiscal policies—and a risk that inflation becomes entrenched.
On the other hand, lower costs in the UK combined with the usual slowdown in tourism across the Atlantic in autumn have made this possible on a 21-day advance purchase:
If only I weren't moving or performing in an opera in the next eight weeks, I'd buy a ticket to London right now.
Wired examines the art and science of managing an 8-kilometer, 14-hour queue:
At its peak, the queue has snaked 5 miles across the capital, with an estimated 14-hour wait. When it reached capacity and closed on Friday, people defied government advice and formed a separate queue for the queue. Such scenes are remarkable—but they’re not unprecedented. When George VI—Queen Elizabeth II’s father—died in February 1952, 300,000 people filed past his coffin in St. George’s Chapel over the course of three days.
Up to 750,000 people are expected to see the queen over the course of her lying in state. At any one time, 30,000 to 40,000 people could be standing in line, according to crowd safety consultant Andy Hollinson, who worked on other aspects of the plan to honor the queen after her death, called Operation London Bridge, but who was not involved in the lying-in-state element. Such estimates are conservative and based on an orderly queue in which people are standing three abreast. The queue in London is more of an orderly blob than a line. “Nobody’s ever seen a queue as long as this before,” says Hollinson.
But despite the unprecedented nature of the queue, prep work has been ongoing for years. “I can see a lot of similarities with the plans I developed 10 years ago,” says Keith Still, visiting professor in crowd science at the University of Suffolk, who, in 2011, was among those asked by London’s Royal Parks to develop a queueing and security screening system for events like a royal funeral. “Wherever the bottleneck is, you work back from that,” says Still. That, in this instance, is the security screening area at the entry to Westminster Hall.
I cannot think of a single reason I would voluntarily stand in a 14-hour queue. But hey, I've never lost a beloved monarch.
It happens every September in the mid-latitudes: one day you've got over 13 hours of daylight and sunsets around 7:30, and two weeks later you wake up in twilight and the sun sets before dinnertime. In fact, Chicago loses 50 minutes of evening daylight and an hour-twenty overall from the 1st to the 30th. We get it all back in March, though. Can't wait.
Speaking of waiting:
Finally, Fareed Zakaria visited Kyiv, Ukraine, to learn the secret of the country's success against Russia.
Her Majesty Queen Elizabeth II has died aged 96:
Queen Elizabeth II, the longest-reigning monarch in British history, has died.
Prince Charles, heir to the throne since the age of three, is now king, and will be officially proclaimed at St James’s Palace in London as soon as practicably possible.
Flags on landmark buildings in Britain and across the Commonwealth were being lowered to half mast as a period of official mourning was announced.
As Queen of the UK and 15 other realms, and head of the 54-nation Commonwealth, Elizabeth II was easily the world’s most recognisable head of state during an extraordinarily long reign.
What a week in the UK.
The South's misfortune is Chicago's benefit this week as a hot-air dome over Texas has sent cool Canadian air into the Midwest, giving us in Chicago a perfect 26°C afternoon at O'Hare—with 9°C dewpoint. (It's 25°C at IDTWHQ.) Add to that a sprint review earlier today, and I might have to spend a lot more time outside today.
So I'll just read all this later:
Finally, the leader of the Westminster city council in London really wants to close down the "American" candy stores opening up all up and down Oxford Street.
More photos from last weekend. I mentioned The Samuel Palmer in Shoreham, Kent, where I stopped after my hike through the Kentish Downs. I didn't mention that I had a delightful cheese plate for dinner, because cheese:
Then I got to experience four Chicago blocks' worth of an English country road at 10:30pm getting to the railway station:
On Saturday, I walked along the Regent's Canal on my way to the Southampton Arms:
Which remains, as ever, one of my favorite pubs in the world:
I will return to all of these places in due course.
I started Friday by having lunch with a colleague in the picture-perfect Hare & Billet in Greenwich:
After lunch I hopped a Southeast service to Otford, Kent, where I embarked on the 6.5 km hike I mentioned Saturday morning. Otford looks like something out of a Brontë novel (either sister), surrounded by farms and walking paths. And sheep:
The village also sits in what I believe is a washout valley bisecting a long moraine known as the Kentish Downs. After a 75-meter climb, I got to this vista:
About 3 km of the walk looked like that. At the end of the ridge the trail sloped into the village of Shoreham, which made by brain hurt. I think I want to retire there:
I ended my journey at The Samuel Palmer, which opened in 2019 in a building continuously operated as a pub since the 15th century. Somehow, this village of 2,000 people supports three pubs, but I only stopped in this one. I might have to try all of them next time I visit the UK.
More photos later this week. Meanwhile, I've got to figure out a tricky security configuration and rehearse Mozart for the rest of the day.
I exhausted myself yesterday with a walk from Otford to Shoreham, in Kent, along the Kentish Downs. I'll have photos after I get home, but until then, here's the Garmin plot:
The bit right around 4km included a steep climb to an amazing view of the Downs. Again, photos next week, which will also demonstrate why I want to retire to Shoreham now.
This is a bit of good news for my weekend getaway:
Long-running weekend strikes on London's Night Tube have been suspended after the Rail, Maritime and Transport (RMT) union accepted a concession from London Underground about rotas.
The bodies have agreed to have a minimum number of drivers who prefer to work overnight on each line.
The RMT stressed the dispute was not resolved, and the situation would be reviewed in three months at the latest.
Ongoing weekend strike action began in January and was planned until December.
The union said the industrial action had been taken to "prevent the ripping up of staffing arrangements that would wreck the work-life balance of drivers".
The strikes have affected the Central, Jubilee, Northern, and Victoria lines, two of which figure prominently in my plans this week as I'm staying in Holborn and spending time in Gospel Oak/Camden Town.