Description
Liz Truss’s September 2022 mini-Budget appeared to mark a turning point in the UK economy, underscoring the declining confidence of financial markets in the British state. This paper evaluates the discretionary fiscal space of the British state from the Truss premiership through the current Labour Government amidst growing macroeconomic instability and rising government borrowing costs. It argues that, against the backdrop of persistent structural weaknesses in its growth model, fiscal space in the UK has been significantly narrowed by the domestic macroeconomic regime that has emerged post-Truss. Engaging with critical macro-finance literature, it contends that an institutional consensus of monetary dominance and fiscal discipline, led by the Bank of England’s aggressive shift toward quantitative tightening and an elevated role of fiscal forecasts by the Office for Budget Responsibility, has amplified market sensitivity to UK economic policy. Exacerbated by the current Labour Government’s macroeconomic conservatism and rising global economic turbulence, this consensus has dramatically narrowed the scope of economic policymaking, undermining the Government’s stated aims of growth and national renewal.
