“‘Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.’”
— Larry Summers, former U.S. Treasury secretary
That was former U.S. Treasury Secretary Larry Summers speaking to Bloomberg on Friday. He also said the economic reforms introduced by U.K. Prime Minister Liz Truss this week could lead to the British pound falling below parity with the U.S. dollar.
The announcement Friday morning of the planned economic policies, which include a package of tax-cutting measures amounting to £45 billion by 2026-27, sent the pound
falling more than 2% to $1.0987, the lowest level since 1985.
“It would not surprise me if the pound eventually gets below a dollar, if the current policy path is maintained,” Summers told Bloomberg Television’s David Westin.
“This is simply not a moment for the kind of naive, wishful-thinking, supply-side economics that is being pursued in Britain,” he said.
The move from the U.K. government sparked fears from economists and analysts about the country’s growing debt. The bond market was spooked, with yields spiking as the government said its tax cuts and support for consumers hit by inflation will cost more than £60 billion over the next six months.
“It makes me very sorry to say, but I think the U.K. is behaving a bit like an emerging market turning itself into a submerging market,” Summers added.
“I hope that at some point this policy package will be reversed, or that somehow I am misjudging the situation. But I am very fearful for Britain on the path that it is traveling,” he said.
Conversely, Summers said, the strength of the U.S. dollar could complicate domestic macroeconomic policies.
“This is going to be an issue that is going to be with us for some time,” Summers said. “Countries are going to have to be adjusting to a very strong U.S. dollar.”