The City backlash against Reform has begun

It will be like Liz Truss on roller skates. The next election may still be four years away, and the manifestos still need to be fleshed out. Even so, the City has already started issuing stark warnings of a run on the pound if there is a Reform government led by Nigel Farage as Prime Minister. Of course, it is a measure of how far the party has come that the City is taking it seriously. The trouble is, there is also an element of truth in it. Reform would face a huge backlash in the markets – and the party will have to be ready for it. 

Even a few weeks ago, City analysts would not have wasted their time trying to work out the impact of a Reform-led government. But Simon French, an economist at Panmure Liberum, is now warning of an ‘immediate and violent’ sterling crisis if Farage becomes prime minister. According to French, the party’s tax and spending plans would blow an £80 billion hole in the government’s budget two to three times more extreme than the Truss mini-Budget and send interest rates sharply higher. In effect, the UK would face a financial crisis every bit as severe as during Truss’s short administration – and perhaps far worse. 

If Reform stays ahead in the polls as the election draws closer, we can expect a lot more similar warnings. If anyone thought City financiers, or Farage’s old mates in the metal trading business, would like its mix of tax cuts, lower immigration and a smaller state they are kidding themselves. The financial markets will be ready to crush a Farage administration just as brutally as they crushed Liz Truss and Kwasi Kwarteng. 

It will be tempting for Reform’s leaders to dismiss that as scaremongering. In fairness, however, there is an element of truth in the warnings. Reform’s numbers often have a ‘back-of-a-fag-packet’ feel about them. And the City banks profit from a high debt, low-growth economy, and are hostile to anything that might change it. They like governments that issue lots of bonds and pay the interest on time because that is where they make the big money.

Either way, the party will have to reckon with a hostile City. A run on the pound will be inevitable, and there will also be a spike in bond yields, and the party will have to figure out in advance how to deal with that. The backlash against its policies has already started – and it will get a lot worse closer to the next election