Its policies could exacerbate inflation in the country and result in ballooning public debt, prominent investor Ray Dalio warns
The UK’s new cabinet is operating like the government of an emerging country, billionaire investor and the founder of Bridgewater Associates Ray Dalio wrote on Twitter on Tuesday.
He criticized Britain’s new spending plan for its aggressive tax cuts that could raise the nation’s debts to an unsustainable level and cripple the pound.
“Investors and policymakers: Heed the lesson of the UK’s fiscal blunder,” Dalio wrote in a tweet. “The panic selling you are now seeing that is leading to the plunge of UK bonds, currency, and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand.”
According to Dalio, the rapid increase in debt, coupled with the lack of demand for the British pound on the global stage, is a recipe for disaster.
“That makes people want to get out of the debt and currency. I can’t understand how those who were behind this move didn’t understand that. It suggests incompetence,” Dalio wrote. “Mechanistically, the UK government is operating like the government of an emerging country, it is producing too much debt in a currency that there is not a big world demand for,” he added.
Last week, British Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng unveiled a new spending plan, designed to spur the nation’s economic growth and help alleviate the effects of soaring energy prices in the short term. Following the announcement, sterling sank to a record low against the US dollar on Monday, while the UK’s bond market experienced the largest one-day sell-off in its history.
According to Deutsche Bank, the new spending plan will push the UK’s debt-to-GDP ratio to around 101%, which is the highest level of debt the country has held since 1962.
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