Forgive me for writing a more whimsical briefing than usual, but it is uncanny how frequently financial crises have been heralded by a general return from the summer vacation.
The Great Crash of October 1929; the Global Financial Crisis of 2008 that came to a head with the collapse of Lehman Brothers on 15 September of that year. Closer to home my generation recalls Black Monday (the stock market crash of October 1987), Black Wednesday (the disorderly withdrawal of sterling from the ERM in September 1992) and the liquidity – and ultimately solvency – crisis that overwhelmed subprime mortgage provider, Northern Rock in September 2007.
This September comes upon us with an increasing sense of unease that a sovereign debt crisis may be imminent. Those who manage wealth and interact in real time with international bond markets have watched over recent months with foreboding at the steady rise in gilt yields for long-dated UK debt. We may still be some way from the generally recognised unsustainable level of seven per cent on benchmark ten-year Treasury Bonds, but long-dated gilt yields are at levels not seen for almost thirty years and are comfortably outstripping rates during the notoriously chaotic Truss interlude in autumn 2022. The heavily indebted and stagnating Eurozone – and, in particular, France where political upheaval currently compounds the sense of economic crisis – is in the markets’ sights.
However, as I observed as the parliamentary summer recess began, the bond markets have also keenly noticed the UK’s political paralysis with dissident government backbenchers holding the whip hand. If an administration with a massive parliamentary majority and potentially four years still to run tells the financial world that it is going to legislate for a modest £5bn package of welfare consolidation (when overall annual public spending stands at £1.3trn) but then fails to do so, market investors will understandably draw their own conclusions about the pricing of future debt auctions.
Perhaps more worryingly still this comes at a time when distrust in financial institutions is rife. Populist politicians across the world – both in and outside office – are at the forefront of national campaigns to undermine the credibility of finance departments and central banks.
Here in the UK, challenging the stifling orthodoxy of traditional Treasury thinking and the policy straitjacket applied by the apparently unimpeachable Office of Budget Responsibility (OBR) have increasingly been in the sights of more radical voices within the think tank and specialist business journalism fraternity. As a senior financial services contact despairingly put it to me some weeks ago, ‘HMT is the only G7 finance department which still holds firm to its belief in Ricardian trade theory; all our competitors have recently become far more mercantilist in their approach to supporting their domestic industries.’
Almost from its establishment in 2010 the OBR has entrenched rather than challenged conventional wisdom. Its forecasts are presented as if served up on tablets of stone and – as is the way with the dismal science of economics – they are invariably wide of the mark, albeit with this only becoming apparent years after the event. By which time the damage of relying so steadfastly upon their predictions has been done – a miserable situation that has been routinely compounded by a succession of Chancellors of the Exchequer boxing themselves in by self-imposed ‘stability’, ‘investment’ and ‘growth’ rules. It is often forgotten that the genesis of the OBR was a largely political device by the coalition government on coming into office, seeking to establish firmly in voters’ minds the alleged economic recklessness of the outgoing Labour administration.
The unwritten rule that politicians – or frontline aspirants to office, at least – should never criticise the decision making of the Bank of England has reached breaking point. In an age of the unconventional this seems set to be yet another convention to be overturned, irrespective of the notional independence that our central bank has enjoyed since 1997. Arguably the Bank has brought this on itself – through a track record of complacency (under the reign of Mervyn King in the run-up to the financial crisis), dismissive arrogance (think Mark Carney’s insistence on prolonging the dangerously distorting era of ultra cheap money) and sheer incompetence (its woeful record over the past five years at taming inflation).
Now lest, as a superannuated Minister of the Crown, I am accused of letting off practitioners of my former trade too lightly, I recognise that politicians deserve much of the blame for the current state in which the nation finds itself. We have abjectly failed to address many of the structural issues in our economy and allowed the can to be continually kicked down the road over the past fifteen years in a superficially becalmed era of near-zero interest rates and almost endless rounds of Quantitative Easing (QE). However, price stability is the single most important constitutional duty of the UK’s central bank and consumer price inflation has soared above the two percent legal mandate for most of the period since the turn of this decade – and for seven months in 2022-23 it was in double digits. The vigour with which the policy of QE, when central banks had flooded global markets with interest free cash to ward off the risk of depression after the 2008 crisis, was restored in order to finance spending following the pandemic lockdowns has turned out to be ruinous. Its inflationary impact and the corresponding huge spike in public debt repayments has had a deplorable impact on the credibility of the Bank at the very moment calm and visionary leadership is required to help get the UK economy through the very challenging period that lies ahead. The Bank of England has also been beset by a woeful track record of inaccurate forecasting, unreliable economic modelling and its misguided insistence on ‘balancing the books’ in the process of reversing QE by crystallising losses in its recent bond sales.
It hardly needs saying that the most profound assault on financial market conventions has come courtesy of the arrival of the second Trump administration. Increasingly desperate assertions from centrist and leftish commentators from January onwards that Donald Trump and his acolytes were leading the US economy into recession, a currency crisis and a global trade war have so far proved wide of the mark. ‘How a dollar crisis would unfold’ was the title of rather breathless lead article that ran in an April edition of The Economist warning of the grim fate awaiting the world if nervous investors were to continue selling US assets. A full-blown bond-market shock has yet to come to pass, but the absence of any willingness on the part of the US authorities to take on responsibility in the event that the global economy needed to be stabilised alarms economic historians.
Leadership, global co-ordination and trust amongst trading partners were lacking as the events of October 1929 morphed into a fully-fledged global depression. At the time the stability of the international economic system hinged upon the ability of Britain and to a lesser extent, France, and the willingness of the United States to assume responsibility for events. For a variety of reasons this failed to happen and economic calamity resulted. One crucial lesson successfully learned eight decades later was the importance of working together with the response being led the US and buy-in from all major economies to a concerted programme of action being universal. It is sobering to reflect just how quickly the ties that bound the G20 together in 2009 have unravelled.
Whilst institutions such as the IMF and the World Bank still exist to provide long-term credit to nations in trouble and the US Federal Reserve manages currency swap arrangements to provide liquidity, the fact that this institution (especially its chair, Jerome Powell) is openly undermined by President Trump does not inspire confidence that financial market norms will be followed in the event of fresh turmoil. As it happens, I also believe the track record of central banks has been lamentable in recent times and those at the helm should not be beyond reproach; my concern is that until a new regime of monetary accountability is fashioned, this is the only game in town and the next major financial crisis may soon be upon us.
One final thought – in trying to work out how and where the next financial crash will start, perhaps we are all looking in the wrong place. Economic historians often advise that the remedies to tackle the last downturn often contribute to the next meltdown and that the perennial recipe for surviving financial turmoil lies in strict discipline to control costs. Recent economic policymaking in the West has evidently been woeful, but we are by no means alone in that.
My time in both business and public life has been marked by the inexorable rise of China as a leading player in the global economy. The opaqueness of its shadow banking system and the lack of transparency surrounding the financial reporting even of its listed companies means that the jurisdiction has always had its critics. It is a country I first visited over two decades ago; my six trips to its mainland included three as a Foreign Office Minister. Shanghai and its recently developed financial district, Pudong (only three decades ago a collection of paddy fields, now a Canary Wharf on steroids suburb with a population of six million) never fail to impress, but equally I recall a train journey from there to Tianjin passing several ghost towns and cities with countless empty skyscrapers, the clearest sign of a massively overheated property market, which remains a drag anchor of personal debt for hundreds of millions of Chinese citizens.
Rapid urbanisation has exacerbated the inequalities between existing city dwellers and the vast waves of migrant workers relocating from rural areas; the imminent squeeze on the labour market as a demographic consequence of its one child policy is a further portent of trouble ahead. The Chinese economy has always seemed capable of defying gravity despite recent deflationary pressures and the Trump administration’s intense threat through punitive tariffs to its export-led model.
In the meantime, a succession of high-profile corruption investigations of senior figures in Chinese public life apparently owe more to domestic political score settling. Their arbitrariness along with the imposition of an opaque policy of exit bans increasingly imposed on Chinese and overseas citizens has made foreign multinationals more nervous of investing in China. Foreign Direct Investment, a key element of its relentless economic growth, today stands at a thirty-year low despite the assertive influence of Xi’s Belt and Road Initiative (BRI) and the development of its Shanghai Co-operation Organisation as a potential diplomatic and economic counterweight to the array of global institutions created by the West in the aftermath of the Second World War.
Whilst in that notoriously secretive polity no-one has yet got rich by accurately calling time on President Xi’s increasingly dictatorial reign since he assumed office in 2012, to many seasoned China watchers his hold on absolute power shows signs of being on the wane. A prolonged political struggle amongst his prospective successors might just bring to a head many of modern China’s inherent inconsistencies and weaknesses.
Written on 8 September 2025 by The Rt Hon Mark Field, former Member of Parliament (MP) for Cities of London and Westminster and Consultant at Buchler Phillips, an independent boutique firm with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.