the providential prime minister of a dangerous economic world


“It’s easy to find yourself over-tightening… now is the time to start talking about quitting,” said Mary Daly, head of the San Francisco Fed.

“We could end up, and the markets priced that in, with another 75 basis point increase, but I would really recommend people not to take that out because it’s 75 forever.”

Be grateful for small mercies. Unfortunately, the full effect of the past tightening has yet to be felt.

The US housing market has already frozen with standard 30-year mortgage rates hitting a 20-year high of 6.94pc. Prices are falling across the country, a very rare occurrence in the United States.

The S&P Global Composite Survey of US Manufacturing and Services fell decisively below the boom-bust line in October, matching the pace of the UK and the Eurozone.

It is a huge relief that Mr. Sunak is leading this country as the global economic hurricane passes. Sovereign political and financial risk is inevitably a beauty contest in times of stress. You don’t have to outrun the big cat, you just have to outrun the most lame herbivore.

Chances are Truss’ misadventure will be forgotten by the financial world within months, overtaken by more intractable sagas of poor economic governance elsewhere. The United Kingdom corrected its error with impressive speed. This is proof of an institutional system that can be very effective.

There is no such mechanism to correct errors by eurozone authorities, even when they persist with destructive consequences.

The excessive austerity that plunged southern Europe into a long depression a decade ago was rooted in treaty law and the enforcement apparatus of EU bodies. The torture continued year after year, with spasms of financial crisis repeatedly pushing EMU to the brink.

The coming downturn will once again expose the horrific design flaws of the half-reformed monetary union. Germany and the Northern creditor bloc are determined to impose rapid rate hikes to stifle inflation. The governor of the Italian central bank made it clear that his country could not bear such medicine.

Frenchman Emmanuel Macron also knows what is coming. “I fear that many experts and some players in European monetary policy (i.e. the Bundesbank) are telling us that we have to crush demand to contain inflation,” he said.

Mr Macron is right. But how will the eurozone system resolve this fundamental clash of economic ideology, cultural preferences and national interest, a fight between German ordoliberals and Latin Keynesians?

This clash was on hold when inflation was dead and the European Central Bank could print money with abandon. He is now in the foreground.

If Mr Sunak is the ideal Prime Minister to get us through the next six months, he will need to change his fundamental economic outlook to put Britain back on a long-term growth path.

Lord Jim O’Neill says the only way to lift the UK out of its post-Lehman malaise is through a radical modernization of UK infrastructure, funded by a revamped golden rule. It should separate current spending from investment spending that is plausibly self-financing with a high multiplier.

I totally agree. It takes a counter-intuitive decision to spend more money after markets just refused to fund the latest fiscal experiment, but not all deficits are created equal. Investors will fund such an expansion if it comes with a consistent story. What we know for sure is that the perma-recession is the worst of all catastrophic loops.

Will Rishi Sunak invest with enthusiasm or will the gnomes of self-destructive austerity catch his ear? We don’t know him.

This article is an excerpt from The Telegraph’s Economic Intelligence newsletter. register here to get exclusive insights from two of the UK’s leading economic commentators – Ambrose Evans-Pritchard and Jeremy Warner – delivered straight to your inbox every Tuesday.

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