Tax cuts that spur growth are usually welcome, not feared by markets. However, governments need to be careful. If there’s one thing investors hate, it's surprises – as Kwasi Kwarteng found out.
'Talk of' is really code for 'testing the water'. If there’s an adverse market reaction, it is easy to deny 'talks' ever taking place. So far, 'talks of' tax cuts haven’t had an effect on gilt rates. Should this continue, and assuming global markets are calm around the time of the actual announcement, then increased borrowing to spur growth is not prohibitive.
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And as long as all debt globally continues to grow, then the UK’s fiscal position is not in real danger, for the time being at least.
George Lagarias is chief economist at Mazars
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