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The British pound gained strength on Thursday after the announcement of the resignation of Prime Minister Liz Truss, trying to erase a multi-decade low against the dollar in which it has been anchored in recent weeks. It was precisely Truss’s economic plan, which caused a panic in the markets, that precipitated her departure.
It took just days in office for the decisions of newcomer Liz Truss to shock Europe’s largest financial center: the pound sterling fell to the lowest levels in four decades and the bond market collapsed after she presented the plan with the that he planned to straighten out the UK’s ailing finances.
Not in vain, this Thursday, October 20, the market applauded the announcement of the resignation of the conservative leader after just six weeks in office. The main stock indices of the London Stock Exchange hit session highs and then stabilized at a rise of just over 0.3% in the case of the FTSE100, the most important.
The pound sterling also rallied on the day, in an attempt to gain strength after weeks of devaluation in which its value has fallen to lows in almost four decades.
Prime Minister Liz Truss resigns after a brief and chaotic tenure that saw her announce a massive package of unfunded tax cuts before unwinding most of it in the face of a market route https://t.co/edFeNHHeZM
—Bloomberg (@business) October 20, 2022
“The pound is trading higher, attempting to climb back to its two-week highs hit earlier this week as investors applaud the departure of Truss and the potential for a more economically savvy, market-friendly leader,” Victoria Scholar said. , chief investment officer at Interactive Investor.
But it all started weeks before, from the very appointment of Liz Truss on September 6.
Two Ministers of Economy in less than two months
Lis Truss arrived at Downing Street hand in hand with her closest political ally, Kwasi Kwarteng, who days later would reveal an ambitious financial plan that fell like cold water on the financial market.
His economic program, dubbed the “mini-budget”, included large tax cuts that raised concerns about how they could be financed and raised UK borrowing costs sharply, forcing the Bank of England to intervene.
The pound, British bonds and, through it, approval ratings for Truss and the Conservative Party, collapsed. Kwarteng was forced to step aside to be replaced by Jeremy Hunt.
The new head of Finance revoked almost the entire fiscal plan presented on September 23 to try to regain the confidence of the markets, although the drastic change of course left the leadership of the prime minister weakened.
In this way, most of the tax cuts with which Truss wanted to promote growth were nullified. At the same time, he announced that public spending cuts were coming in order to reduce the accumulated net debt in the medium term.
Following Truss’s resignation, Hunt is now scrambling to find tens of billions of pounds in spending cuts to carry out his former boss’s plan, which is due to come forward renewed on October 31. In the process, rebuild Britain’s fiscal reputation as the economy heads into recession and inflation hits its highest level in 40 years.
With AP, Reuters and EFE
