The City of London may be 400 miles away, but the smell of burnt rubber and shattered glass in Belfast last night will inevitably seep into the market’s nostrils. After a night of what can only be described as civil turbulence, the UK Government has announced an emergency rebuilding fund. A fiscal response that, while compassionate, raises my eyebrow.
Let us examine the ledger. The cost of this fund, yet to be quantified, will be borne by the taxpayer. In a climate where gilt yields are already jittery and inflation is gnawing at real returns, this is hardly the sort of capital expenditure that boosts productivity. We are spending money to rebuild what was destroyed, rather than investing in what could be. That is the difference between maintenance and growth.
The government’s promise is swift, as is the political necessity. But the bond market is not sentimental. It will see this as another line item added to the national debt, another reason to demand a higher risk premium. I suspect long-term yields will nudge upward in the coming sessions.
Belfast has seen this before. The scars of the Troubles are not merely physical but psychological, embedded in the local economy’s risk profile. Foreign direct investment, already skittish due to Brexit uncertainties, will now have another factor to consider. Capital flight is a silent killer; it does not make headlines, but it drains the lifeblood of recovery.
The emergency fund is a sticking plaster. The real cure is fiscal discipline and a stable political environment. Without that, we are merely shuffling chairs on the deck of a ship that is taking on water.
Markets will watch Belfast not with sympathy, but with a calculator. The bottom line is that instability has a cost, and the bill is about to be sent to the Chancellor’s desk. Let us hope he does not default on the payment.
