28 September 2022

Reuteres: Britain's market rout stokes contagion fears around the globe

The scale and speed of the sell-off in British assets has jolted world markets, raising concern about contagion as chaos in a major developed economy adds to unease already generated by sharp interest rate rises from the United States and elsewhere

Following Friday's UK mini-budget, which flagged 45 billion pounds' ($48 billion) worth of unfunded tax cuts, sterling tumbled to record lows while British bond prices slid. Signs of dislocation were apparent on Wednesday before the Bank of England (BoE) stepped in to calm markets.

Markets had already been unnerved by an energy shock that has fuelled inflation and a strong dollar that is creating headwinds globally and which prompted a rare Bank of Japan intervention in currency markets just last week.

"It is like having a sand castle where bits and pieces start falling off all together," Olivier Marciot, head of investments for multi assets and wealth management at Unigestion, said, referring to Britain contributing to global stress. "I think the UK is one of those pieces ... It is just adding to the pain, adding to the stress."

Concern about the UK's new economic policy has added to the already heightened volatility, with a rout in gilts spilling over into even safe-haven U.S. Treasuries and top-rated German bonds...

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