BCG Henderson Institute

Sign In
idea explorer
SUBSCRIBE

LOAD MORE

Why the market vetoed the U.K.’s budget–and what it means for the changing nature of stimulus around the world

Jimmy Carter and the market veto of his budget in early 1980 come to mind when watching investors' harsh rebuke of the UK budget. In a new Fortune article we revisit the learning from that episode when high inflation was a clear constraint on stimulus tools - fiscal and monetary alike.

This researched was published on September 27, 2022 in Fortune

Consider the following statement about the relationship between markets and policymakers: “(They) are separated by light years of distrust and misunderstanding. But market realities have the last say-so. Wall Street votes with the upward or downward movement of stock and bond prices. Their reaction ultimately will make or break a President’s program.”

These were the words of Stuart Eizenstat, advisor to President Jimmy Carter, about the hard lessons learned about his failed budget in early 1980 (he had to retract it) that could have been a warning to Prime Minister Liz Truss and chancellor of the Exchequer Kwasi Kwarteng. By announcing an overreaching budget–which has good intentions and good elements–they behaved as if we were still in a pre-COVID era where economic slack and sluggish inflation gave license for unfettered tactical stimulus.