Daily Update: Forgotten Lessons of the Mini-budget

Today is Wednesday, February 26, 2025, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global.?Subscribe?to be notified of each new?Daily?Update.?

On Sept. 23, 2022, then-Chancellor Kwasi Kwarteng delivered his growth plan for the UK, which came to be known as the mini-budget. The plan offered an unbridled version of supply-side growth economics — slashing the highest income tax range, reversing a plan to raise corporate taxes, reversing the rate increase in National Insurance, and eliminating the proposed Health and Social Care Levy. Kwarteng and then-Prime Minister Liz Truss appeared genuinely surprised that financial markets reacted negatively to the mini-budget, which relied on increased government borrowing to pay for the tax cuts. The value of the pound fell to an all-time low against the US dollar, interest rates jumped and UK government debt experienced a sell-off.

The mini-budget is now seen as an example of the fiscal perils of ideological excess, perils that dissipated as policies were reversed and as the Conservative Party dismissed Kwarteng and Truss resigned, to be replaced by the fiscally prudent Rishi Sunak. However, it was the fast and independent action of the Bank of England that signaled the beginning of the end of the mini-budget crisis. On Sept. 28, the central bank announced that it would resume buying UK government bonds, or gilts, which ultimately calmed gilt markets.

Most advanced economies allow the governing authority to maintain fiscal authority but create an independent body for control of monetary policy. Central bank independence is helpful in a crisis because the monetary authority can take positions that are politically unpopular or even in opposition to fiscal authorities. If Kwarteng had directed the Bank of England to buy gilts, markets might not have calmed. The perception that less ideological, less political heads were stepping up helped to stabilize gilts and the pound.

US President Donald Trump has criticized the Federal Reserve for maintaining higher interest rates to control inflation and has publicly stated his desire to see interest rates lowered. At the same time, the Fed may delay monetary easing as the Trump administration implements tariffs, immigration curbs and tax cuts — policies that tend to be inflationary, according to S&P Global Ratings.

Should inflation increase in the coming months, a confrontation between the Fed and the current administration could come to a head. If that occurs, it is worth remembering that market stability on US government bonds owes much to the security offered by an independent monetary authority. ?

Today is Wednesday, February 26, 2025, and here is today’s essential intelligence.

Written by Nathan Hunt.

Sustainability

EU Carbon Prices Sink Further Tracking Weaker Gas

European carbon allowances fell steadily in the week ending Feb. 21 amid a wider bearish energy complex. The drop was driven by a mixture of fundamentals, geopolitics and speculator readjustments.

"We are seeing this downward trend because of the sentiment related to Russia-Ukraine, but also because funds are increasing short positions," a Europe-based carbon analyst told Platts, part of S&P Global Commodity Insights. "UK Allowances, EU Allowances are plummeting a bit after Putin-Trump [potential] peace talks."

—Read the article from S&P Global Commodity Insights

Economy

iBoxx USD and EUR Emerging Markets Indices – 2024 Review

Emerging market bonds are a vital diversification tool for investment portfolios, serving as an alternative and a complement to high yield allocations. In today’s interconnected global economy, these bonds are significantly affected by geopolitical tensions, changes in leadership, fluctuations in the US dollar and interest rate movements in developed nations, particularly the US.

—Read the article from S&P Dow Jones Indices

Capital Markets

Higher Fee Revenues, Brighter Outlook Boost Mood of Private Equity's Big 4

Record revenues from management fees and a brighter outlook for M&A in the year ahead helped private equity's Big Four close 2024 on a high note. The average net positivity score for the four largest listed alternative asset managers — Apollo Global Management Inc., Blackstone Inc., The Carlyle Group Inc. and KKR & Co. Inc. — rose to its highest level in several years, according to an S&P Global Market Intelligence analysis of the language used by executives and analysts on fourth-quarter 2024 earnings calls.

—Read the article from S&P Global Market Intelligence

Global Trade

Resume KRG Oil Pipeline Exports or Face Sanctions, US Tells Iraq: Sources

The US has ordered Iraq to resume exporting Kurdish crude through a pipeline to Turkey's Ceyhan terminal after a two-year closure or face the threat of sanctions, sources confirmed to Platts Feb. 21. White House officials were scheduled to hold a call with Iraqi counterparts to discuss the issue in the coming days, according to one source familiar with the matter.

—Read the article from S&P Global Commodity Insights

Energy & Commodities

Global Lithium Market Sees Surge in Bidding Activity After Demand Lull

The global lithium market saw a surge in bidding activity in the week to Feb. 21, especially in China, after a period of stagnant demand in the fourth quarter of 2024 and early 2025, market participants said. Some participants said this rise in bidding activity might be a double-edged sword — offering transparency while introducing near-term price volatility.

—Read the article from S&P Global Commodity Insights

Technology & Innovation

MediaTalk | Season 3 | Ep. 8 - How AI is Reshaping Gaming and Consumer Tech

In this episode of "MediaTalk," host Mike Reynolds is joined by Neil Barbour, a Kagan analyst at S&P Global Market Intelligence, to explore the dynamic landscape of the gaming and tech industries. They discuss the resurgence of smart devices through AI integration, which is breathing new life into products like smart glasses and smartphones. Barbour emphasizes that AI is not just a trend but a transformative force, enabling consumers to interact with devices using natural language, potentially unlocking greater value.

—Listen and subscribe to the podcast from S&P Global Market Intelligence

Events & Webinars

TPM 2025 (Long Beach, California | March 2-5, 2025)

TPM, organized by the Journal of Commerce by S&P Global, is the premier conference for the trans-Pacific and global container shipping and logistics community. TPM annually presents the industry’s most in-depth program delving into the most pressing challenges affecting container shippers in North America and globally. The event annually attracts the most senior-level audience in this industry and is a platform for a week of essential and intensive networking, negotiations, and relationship building among the multiple parties in the international container shipping supply chain.

—Register for the conference