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The UK is experiencing the worst economic collapse in over 40 years. Energy prices are soaring. The bond market is collapsing, causing the rest of the economy to crash as well. Housing, pension funds, cash, cars, education, and banks are all in trouble now. The situation is so horrendous that the International Monetary Fund has openly attacked the UK’s economic policies. The economic disaster in the UK is terrifying and it’s only going to get much worse from here.

Do something like Think School’s intro where you show a lot of news sources talking about the crisis and show footage/animations on top of it.
Because of excessive money printing during the pandemic, inflation in the UK has soared to a 32-year high of 8.6%. This is hurting the purchasing power of UK citizens and is, as a result, slowing down the economy. In the United States, the Federal Reserve is combatting inflation by raising interest rates and selling bonds. This is lowering consumer prices by stagnating the economy. The UK economy can’t handle this level of pain, because the economy is already in a poor position. In fact, the UK is the only advanced economy that hasn’t fully recovered from the pandemic. This is a lose-lose situation for the UK because there’s simply no way to avoid a total economic collapse. Selling bonds is like slamming the brakes on a car going at 100 miles an hour. If the UK reduces the money supply, the car will lurch backward and everyone in the car will as well. The other option for the UK is to print money to save the economy. This would be like slamming the gas pedal, forcing the car to accelerate to 200 miles per hour. While the car might go faster in the short term, the entire car will eventually crash and blow apart. The new prime minister Liz Truss has decided to slam on the gas pedal. On September 23rd, Liz Truss and her chancellor announced a new policy called the mini-budget. Unbeknownst to Truss at the time, this was one of the worst policies in modern history.

The mini-budget aims to lower tax rates to boost the annual growth rate of the UK back to 2.5%. Truss believes that the only barrier that prevented the UK economy from rebounding was the UK’s taxation on the rich. This was a horrible assessment by Truss for numerous reasons. Lowering tax rates not only exacerbates inflation but also increases government debt. This graph shows the government’s net borrowing as a percentage of the UK’s total GDP. The mini-budget is expected to increase net borrowing as a percentage of GDP from 5% to almost 8%. That’s a frightening increase that puts the UK in a much more awful situation than before. To make matters even worse, the UK is dealing with an international crisis.

The UK is currently trading like its an emerging economy because it practically is one. The country is currently in a considerably large twin deficit. A twin deficit is when the current and financial accounts of a country are both in a deficit. You might be confused as to what those terms are, so make sure to pay attention. The implications of this are serious. The current account tracks a country’s imports and exports. When a country’s current account is in a deficit, this means that the country is importing more than it is exporting. In simpler terms, more money is leaving the country than entering the country. Let’s say I’m a citizen of the UK and I buy 50 pounds of goods from China and sell 30 pounds of goods back to China. In order to first buy Chinese goods, I would first need to convert those 50 British pounds into Chinese yuan. On the flip side, the Chinese buyer of my 30 pounds of goods would need to convert Chinese yuan into 30 British pounds. 50 British pounds were converted into Chinese yuan and 30 pounds worth of Chinese yuan were converted back into pounds. This means that I essentially converted 20 net British pounds to yuan. In this instance, I have now created a supply imbalance. Now there are immensely more British pounds than Chinese yuan on the market. That is essentially what a current account deficit is on a smaller scale. In the example that I demonstrated, I imported 50 pounds of goods but only exported 30 pounds of goods. By doing this, I would be destroying the exchange rate of the pound, spending lots of money, selling uncompetitive exports, and exacerbating inflation.
The UK’s current account balance as a percentage of GDP is currently at an all-time low of -8%. That’s a terrifying percentage that is putting substantial pressure on the British pound. The pound-to-dollar exchange rate is currently at a 37-year low. That’s right a 37-year low. The UK not only has a current account deficit but also a fiscal account deficit. You are going to be shocked by how ridiculous the situation is.