Against the background of progressive inflation in England, as in the whole of Europe, quite natural processes began to occur.
Due to the rise in energy prices (and in the UK a large share of income is spent on paying bills for electricity), there is a fairly noticeable economic decline in the real sector.
To smooth out the situation, the UK government has developed a number of measures to support its households, plus tax cuts – incentive measures related to injecting additional liquidity into its economy and hoping for some ways to restore it due to this.
Against the background of a rising dollar (the Fed rate is already 3.25%), and England is a much import-dependent country (namely, the US dollar), a situation is brewing with even greater inflation heating (price growth). All this naturally began to scare off investors and provoke them to move away from the pound into other assets - the national currency is falling.
But in order to avoid progressive inflation, the Bank of England is starting to increase its discount rate after all (by the end of 2022, the target is 5%), looking back in turn at the risks of the debt crisis (with the inability to repay bonds at the expense of expensive obligations). Somehow it is necessary to raise the rate, and the real sector does not seem to "put".
A temporary compromise between the government and the Bank of England has been found so far. The latter announced temporary targeted purchases of long-term government bonds for about 2 weeks, from September 28 to October 14, which will restrain the rapid growth of the discount rate. That is, the Bank of England intervenes at the expense of domestic resources (buys government securities, pouring money into the economy), and not the external debt market. Against this background, the prices of government debt obligations are falling - the yield of 10-year bonds fell by 43 basis points to 4.08%.
Thus, the UK government, together with its Bank, is temporarily suspending the tightening of monetary policy and betting on increasing the solvency of its voters. But how long will this delay the economic crisis associated with the need to bring down inflation and the recession that is coming due to this.
Note that this scenario can be imposed on other European countries, whose imports are largely the envy of the American dollar. Due to the events taking place, the prospect of their plunging into a deep economic crisis is no longer far away.
As for Russia and Belarus, in conditions of expensive life (expensive ruble), relative to the outside world, and the absence of a market, the prospects for recovery, and even more so for an increase in trade turnover, provided the embargo is lifted, are zero or the exit is"shock therapy.
What is the reason for the fall of the British pound and European currencies – a harbinger of the economic crisis – Something like that!