Six worshippers dead. Twelve wounded. A San Diego mosque turned into a slaughterhouse. The headlines are grim but the market signal is clearer: the West is losing its battle against religious extremism, and investors are starting to price in the risk. Gilt yields edged up this morning as safe havens wobbled. The pound sterling took a hit. Capital is moving, and it is moving away from uncertainty.
Let me be blunt: this is not just a tragedy. It is a balance sheet failure. For years, governments have thrown money at counter-extremism programmes with little to show for it. The Home Office alone has spent over £500 million on Prevent since 2015. Yet here we are. A lone gunman with a manifesto and a semi-automatic weapon walks into a place of worship and the body count rises. Where is the return on that investment?
The fiscal reality is this: every pound spent on reactive security is a pound not spent on productive infrastructure. The UK’s debt-to-GDP ratio sits at 100%. The US is not far behind. We are borrowing to fund failure. And the market knows it. The yield on the 10-year gilt has crept up 15 basis points this week alone. That is the cost of fear.
Central bankers will tell you this is a social issue not an economic one. Nonsense. Violence breeds volatility. Volatility destroys value. The FTSE 250 dipped 0.8% on the news. Defence stocks rose. Gold ticked up. These are the telltale signs of a portfolio in flight. Investors are rotating out of consumer discretionary and into hard assets. That is not a coincidence. That is a judgment.
The real problem is ideological. The West has lost the narrative. We talk about tolerance but refuse to enforce our values. We condemn extremism but fund its enablers through foreign aid budgets. The Treasury’s own data shows that £1.2 billion in aid went to countries with track records of religious persecution last year. That is not charity. That is subsidy.
Meanwhile, the Bank of England sits on its hands. Inflation is still above target at 2.8%. Interest rates remain at 5.25%. The MPC is trapped between fighting price rises and supporting a nervous economy. A massacre does not change that calculation. But it does change the risk premium. And that premium is rising.
What should be done? First, stop treating this as a law enforcement issue. It is a capital allocation problem. Redirect funds from failed social programmes to actual security. Second, cut off the money. Track the flow of petrodollars into extremist networks. Freeze assets. Third, let the market work. Raise interest rates if necessary to crush the inflation that feeds discontent. A stable currency is a stable society.
Do not expect any of this to happen. Expect more hand-wringing, more committees, more spending. And expect more capital flight. The mosque massacre is not an outlier. It is a trend. And the trend is your friend only if you are short on bonds and long on gold.
This is Alastair Thorne, chief financial editor, signing off. The bottom line is that the cost of extremism is coming due. And the market is already paying.
