Britain's sudden lurch to 'Reaganomics' gets a thumbs down from the markets - CNBC
ING analysts said in a research note that investors are worried that the U.K.Treasury has now effectively committed to open-ended borrowing for these tax cuts, and that the Bank of England will have to respond with more aggressive rate hikes.
"To us, the magnitude of the jump in gilt yields has more to do with a market that has become dysfunctional," ING's Senior Rates Strategist Antoine Bouvet and Global Head of Markets Chris Turner said in the note.Deutsche Bank analysts said, meanwhile, that the "price of easy fiscal policy was laid bare by the market" on Friday."[Friday's] market moves suggest that there may be a credibility gap," Sanjay Raja, a senior economist at Deutsche Bank, said in a research note."Crucially, with fiscal policy shifting into easier territory, the onus may now fall on the Bank of England to stabilise the economy, with the MPC [Monetary Policy Committee] having more work to do to plug the gap between expansionary fiscal policy and tightening monetary policy.".