Race to be fifth.

"I know an unpopular economic policy when I see one. And the consensus among economists about the tax cuts and deregulations announced last week by UK Prime Minister Liz Truss is almost universally negative," wrote Prof Tyler Cowen. In an immediate reaction the British currency the sterling fell by 4.85% to $1.037 and "British bond prices were set for their biggest slump of any calendar month since at least 1957." Reuters. Bond prices are inversely related to yields, Investopedia, so a fall in prices means higher borrowing costs for the government. This also signals that markets expect inflation to increase. The rate of inflation in the UK was 9.87% year-on-year in August, a tad lower than 10.101% in July. RI. A bigger danger was that the fall in bond prices slashed asset value of pension funds which invest in government bonds because of their safety. "Pension funds, which invest in bonds, were forced to start selling, sparking fears of a fresh market downturn." BBC. The fear was that falling value of assets could result in pension funds being forced to default on their debts. So the Bank of England pledged to buy 65 billion pounds worth of government bonds which would increase their price. This is good old 'quantitative easing' in which central banks buy government securities to encourage lending by reducing borrowing costs and increasing liquidity in banks. But, won't this increase inflation? Prof Cowen is baffled by the panic. Current yields are 4.5% on two-year security and 4.3% on 30-year security while core inflation was 6% for July and August. "In other words, the UK government is borrowing at about a negative 2% real rate of interest right now." Despite the cut in top rate of income tax from 45% to 40% it is still higher than the top rate of 37% in the US. So, why such a reaction? India's economy is now larger than that of the UK. "On September 2, the International Monetary Fund (IMF) announced that India has surged past the United Kingdom to become the fifth largest economy in the world." HT. "India increased its lead over the UK in the quarter ending March, IMF data showed." If India's economy is booming the rupee should be stronger. But, "In a battle that has so far failed to staunch the rupee's fall to a record low against the greenback, the RBI has drawn down its foreign exchange reserves by nearly $100 billion to $545 billion from $642 billion a year ago, and more is coming." Mint. "The Reserve Bank of India (RBI) is said to be contemplating several bespoke measures, such as opening a special window for oil importers and reducing the hedging costs for foreign-currency depositors, to minimise the pace of decline in the rupee against the surging US dollar." ET. "The RBI has used its forex stockpile across platforms - spot, futures, forwards and non-deliverable forwards markets." "The Indian rupee has held back very well against the US dollar compared to other currencies, Finance Minister Nirmala Sitharaman said." ET. That will make our exports more expensive compared to our competitors. Little surprise that exports contracted by 1.15% to $33 billion while the trade deficit doubled to $28.68 billion in August. BT. Which will win - UK or India, pound or rupee? Who comes fifth?