After the end of Truss' skidding course, the problems piled up in Great Britain

New Zurich newspaper Germany After the end of Truss' skidding course, the problems piled up in Great Britain Niklaus Nuspliger, London - 3 hrs ago Less than three weeks ago, Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng were still at the helm in Great Britain. Their plans for debt-financed tax cuts had spooked investors, sent the pound on a roller coaster and sent UK government bond yields skyrocketing. The situation has stabilized since the departure of Kwarteng and Truss. New Prime Minister Rishi Sunak and Finance Minister Jeremy Hunt have vowed to put the country back on the path of fiscal confidence. Financial market turmoil has eased since Liz Truss' departure, but the outlook for the UK economy is bleak. A "British additional premium" on debt Still, Britain faces tough times and a mountain of problems. The Bank of England raised interest rates from 2.25 percent to 3 percent on Thursday. This is tantamount to the biggest move since 1989, raising interest rates to their highest level since 2008. The decision was expected by investors, with some analysts suggesting the rate hike would have been even larger if Truss' unfunded tax cuts had not been reversed. Bank of England deputy governor Dave Ramsden told the media that yields on UK government bonds have dropped to about the level they were before the fateful September 23 Kwarteng budget announcements. But the situation on the markets remains “feverish”. The pound lost value against the dollar on Thursday, but experts attribute this primarily to the strength of the American currency. Governor Andrew Bailey said the recent market turmoil had damaged Britain's international credibility, reflected in a continued "British premium" on debt interest rates. Bailey had played a key role in the Truss and Kwarteng drama. Concerned about the stability of exposed pension funds, the Bank of England bought up long-term British government bonds in an emergency in October to support prices. When Bailey pushed through the end of this intervention, the markets pressure on Truss increased immeasurably. At the beginning of November, the Bank of England became the first central bank in a G-7 country to start selling government bonds and abandoning the policy of quantitative easing. Longest recession in a hundred years On Thursday, Bailey stressed that the central bank had no choice but to fight inflation by raising interest rates. Inflation is currently a good 10 percent and, according to the Bank of England's forecast, should start falling by the middle of next year. Bailey explained that further interest rate hikes may be necessary, but emphasized that these should ultimately be lower than the 5.25 percent expected by the markets. This statement, which is rather unusual in its clarity, could also slow down the increase in mortgage interest rates, which threatens to pose existential problems for some British homeowners. In its forecast, the central bank paints a bleak picture. In the summer, the Bank of England had predicted a significant but only one-year slump from the end of the year. It is now forecasting a tough, if not particularly deep, recession of up to eight quarters into the likely election year of 2024 - which would be the longest economic downturn in a hundred years. Unemployment could almost double from the current level of around 3.5 to 6.5 percent. Sunak has to plug huge hole However, the bank has not yet been able to take into account the consequences of the new budgetary policy of Sunak and his Chancellor of the Exchequer, Jeremy Hunt. The government had postponed the announcement of its new budget and the assessment of the independent Office for Budget Responsibility from the end of October to November 17 - also in the hope that falling interest rates on British government bonds would ease the pressure to act somewhat. The pressure is already great enough as Sunak and Hunt have to plug a hole in the state finances of around £50bn. This will only be possible with a combination of an austerity program and tax increases. The government is considering a massive increase in the tax on energy companies' extraordinary profits, which should bring £40 billion into the state coffers over five years. But Sunak will also have to ask citizens who are already grappling with rising energy prices, food costs and mortgage interest rates to pay more.