“It does underscore how much the U.K. is one part of a much wider, interlinked global phenomenon,” she said.
Yang, a former Financial Times journalist, said the government shouldn’t shift policy because of daily market moves driven by news out of Washington.
“We’re a medium-sized economy in the global market, so we will always be affected by what happens in the U.S.” she said. “There’s no getting around that.”
Andrew Goodwin, chief U.K. economist for Oxford Economics, agreed that market troubles have been triggered by global issues. However, he told POLITICO, the chancellor did make a mistake by limiting her own room for maneuver, the “headroom” that allows a chancellor to cut taxes or increase spending without breaking fiscal rules should circumstances change.
“It’s almost entirely a global story — markets think the world will be more volatile, particularly in terms of inflation,” Goodwin said.
“But I think if gilt yields remain where they are today, then you wipe out pretty much all the headroom that she had in October. To some extent, she is paying for what we think was a mistake in the budget to leave too little headroom. She’s unlucky, but she has left herself open to it happening.”