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UK Financial Crisis of 2022: Retrospective Diagnosis and Policy Recommendations

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  • Ethan Ilzetzki

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM))

Abstract

The UK government’s “mini-budget” announcement on September 23, 2022 sent yields on UK government bonds soaring at a daily rate not seen since November 1988, brought the value of the pound to all-time lows, lead some mortgage providers to suspend lending, and dropped the UK pension system to a liquidity crisis. The worst pressures on the UK economy and financial system appear to have subsided. Nevertheless, risks still remain and some problems — particularly with mortgage affordability - are likely to persist at currently projected interest rates. This note begins with a diagnosis of the causes and nature of the crisis and continues with policy recommendations for current circumstances and groundwork that should be set pre-emptively, in case interest rates rise again beyond current expectations.

Suggested Citation

  • Ethan Ilzetzki, 2024. "UK Financial Crisis of 2022: Retrospective Diagnosis and Policy Recommendations," Discussion Papers 2408, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2408
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    File URL: https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2024/CFMDP2024-08-Paper.pdf
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    References listed on IDEAS

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    1. Peter Ganong & Pascal Noel, 2020. "Liquidity versus Wealth in Household Debt Obligations: Evidence from Housing Policy in the Great Recession," American Economic Review, American Economic Association, vol. 110(10), pages 3100-3138, October.
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