Markets are treating the UK as if it’s a developing economy — a sign that confidence has plunged — after Britain shared a plan to cut taxes, according to Nobel Laureate Paul Krugman.
The top economist pointed to the market bloodbath last week when the pound dipped after new Prime Minister Liz Truss announced she would be implementing tax cuts, including a 5% cut on top wealth holders and slashing planned corporate tax increases.
“British markets aren’t acting like those of an advanced country,” Krugman said in an op-ed for the New York Times on Friday.
The government acknowledged the plan means that there will be massive borrowing to cover budget deficits. Advanced countries in a budget deficit see the value of their currencies surge as investors expect their central banks to raise rates to tame inflationary effects, he noted.
But Britain’s markets are “behaving like those of a developing country, in which investors tend to see budget deficits as a sign of irresponsibility and a harbinger of future policy disaster,” Krugman said.