Advertising Material for professional investors only*

Britain is not Italy

21 October 2022

After just 45 days in office, Liz Truss, the unpopular British Prime Minister, resigned after pushing an unfunded budget that sent the Sterling plummeting and Gilts yields sharply higher. The budget, which had seemingly not been reviewed by the government’s fiscal specialists or the Bank of England, met a market hungry for clear macroeconomic solutions. The result was a crisis that forced Truss out of office in what proved to be the shortest tenure of any Prime Minister in British history.

Is Britain’s situation akin to Italy’s?

There are some similarities between the UK’s current challenges and Italy’s. The two countries share a series of vulnerabilities:

1. Political instability comes when too little growth is being shared very unevenly across the population leading to governments strongly favoring one group over others without a sense of a national social contract. This can happen when there are strong regional/identities disparities (e.g. countryside versus greater London), strong wedge issues that leave few swing votes and when people begin to form culturally segregated groups with conflicting news streams (e.g. Daily Telegraph and Mirror versus the Guardian). That said, it’s important to note that there is a large swath of swing voters in the UK.

2. The second element of comparison with Italy is a high government debt level (96% vs Italy 150% ) but it is far from critical levels and Gilts are likely to rally as investors risk appetite improves. Part of the rise in Gilt yields is a perceived sense that the Bank of England needs to tighten more faced in part with a weak currency, rather than an acute credibility crisis. High leverage in LDI strategies used by pension funds accentuated the demand for Gilts.

3. Finally, in both cases, the level of growth is too low especially faced with the cost of climate change. This suggests Italy and Britain face difficult reforms ahead.

What does it mean?

For governments looking at the UK, it is no surprise that good governance and dealing with the high costs of the energy crisis are a priority. It is also a reminder that progress is easier when society is unified—which is not fully the case in the European Union. The current political climate suggests central banks will, when they can, maintain as easy a monetary policy stance as possible. That tends to favor holders of equity and credit in the long-run.


*according to MiFID definition

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches and subsidiaries. This document is advertising material and is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest Key Investor Information Document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management AB recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. A summary of investor rights is available in English through the following link: The Legal Entities’ branches and subsidiaries are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and subsidiaries. This document is furnished on a confidential basis and may not be reproduced or circulated without prior permission and must not be passed to private investors. This document contains information only intended for professional investors and eligible investors and is not intended for general publication. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and/or subsidiaries.


We hebben onze Privacy Policy geupdated. Klik hier voor meer informatie.