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“The UK is behaving a bit like emerging markets turning themselves into an offshore market,” says Larry Summers.

“Between Brexit, how far the Bank of England has fallen behind the curve and now these fiscal policies, I think Britain will be remembered for having pursued the worst macroeconomic policies of any large country in a long time.”


Larry Summers, former US Treasury Secretary

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This was former US Treasury Secretary Larry Summers speaking to Bloomberg on Friday. He also said that the economic reforms introduced by British Prime Minister Liz Truss this week could cause the British Pound to drop below parity with the US Dollar.

The Friday morning announcement of the planned economic policies, which includes a package of tax cuts to £45 billion by 2026 to 27, sent sterling against the US dollar,
-3.59%
It fell more than 2% to $1.0987, the lowest level since 1985.

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“I wouldn’t be surprised if the pound eventually drops below the dollar, if the current policy trajectory is maintained,” Summers told Bloomberg Television correspondent David Westin.

“This is simply not a moment for the kind of naive, wishful-thinking supply-side economics that is being pursued in Britain,” he said.

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The UK government’s move has raised concerns among economists and analysts about the country’s mounting debt. The bond market was spooked, with yields soaring as the government said tax cuts and support for inflation-affected consumers would cost more than £60 billion over the next six months.

“I’m very sorry to say, but I think the UK is acting somewhat like emerging markets turning themselves into an offshore market,” Summers added.

“I hope at some point this policy package will be reversed, or I somehow misjudged the situation. But I am very afraid for Britain on the path that it is taking.”

Conversely, Summers said a strong US dollar could complicate domestic macroeconomic policies.

“This is going to be an issue that will be with us for some time,” Summers said. “Countries will have to adapt to a very strong US dollar.”

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