Who is Sunak kidding with his warnings about sterling?

There will be a run on sterling. The gilts market will be in freefall. And the FTSE will tumble as global investors take fright and sell off every form of British asset. It might take only a few days, or the government might stagger through until the end of September, but before long Liz Truss and her new Chancellor Kwasi Kwarteng will have been forced to call in the IMF to stabilise a collapsing economy. That is, at least, according to the former Chancellor Rishi Sunak. With just a few desperate days left in his doomer leadership campaign, he has declared his opponent’s tax and spending plans so wild and reckless they risk a full-blown sterling crisis of the sort we have not seen since the 1970s.

In an interview with the Financial Times today Sunak argued that he ‘struggled to see’ how Truss’s tax and spending commitments ‘add up’, warning it would be ‘complacent and irresponsible’ for the next prime minister ‘not to be thinking about the risks to the public finances’. Unfunded spending commitments he warned would lead to spiralling public debts, rising interest rates, and a surge in borrowing costs. Very soon we will have turned into Argentina with drizzle.

It helps Sunak’s case that sterling is already very weak, slipping to $1.16 in the markets this week – its lowest levels in more than five years (although anyone who thinks there is anything very exceptional about that should check the euro-dollar exchange rate). The markets are already in a funk about all the major European economies, the UK included, and against that backdrop it is not very hard to whip up a panic.

The trouble is, Sunak is just making himself look childish and petulant. There are a couple of problems with his warning about the threat to sterling and gilts. 

The first is that there is nothing especially wild or radical about Truss’s plans. All she has proposed so far is to cancel some recent and planned tax rises that everyone agrees were damaging to competitiveness anyway, and which would have made the UK the only major economy in the world to be raising taxes heading into a recession. In fact the UK has lower debt as a percentage of GDP than France and the US and they are cutting taxes or boosting spending as well. 

Next, the man who gave us ‘eat out to help out’ can hardly start posturing as the guardian of fiscal conservatism. There is always a case to be made for balancing the books, but since Sunak showed no interest in that at the Treasury it is too late to start making that argument now. 

In truth, Sunak has already lost this campaign. He is not doing himself any favours by trying to start a run on the UK – if he is going to lose, it is better to bow out with dignity.