Only 44 days into her role, Liz Truss, the United Kingdom prime minister, chose to resign from the role. Of course, the early exit has had an impact on the British markets, even so after the next appointment of Rishi Sunak as the first Indian-origin and one of the youngest Prime Ministers in the history of the U.K.
Truss entered the cabinet with a pro-growth policy, but the strategy was not timed in the best capacity. The U.K. bond market declined quickly as her policies did not work as promised, and inflation surged even further. With the unstable markets, the Bank of England had to intervene in gilt markets and increase interest rates and is continuing to do so.
With her exiting the role, there is mild positivity in U.K’s markets, provided the current PM Sunak holds his ground well. The Pound is expected to stabilise in the near future, especially after the U.K. gilt markets have shown better performance.
Equity markets, Pound Sterling and gilts fell right after the exit was announced and depicted huge uncertainty till the new PM was announced. However, with the entrance of the brand-new PM, there is still some level of uncertainty. However, overall, the markets have reacted favourably and are expected to move toward positive economic and political stability.
Truss – A great political gamble?
Liz’s policies have been named a ‘great political gamble’ by Susannah Streeter, the senior investment and markets analyst at Hargreaves Lansdown. It backfired and reaped significant damage to the U.K. economy. The risk premium that is attached to U.K. assets started fading away, leading to a financial breakdown followed by an immediate mini-budget.
Impact on the market after the resignation announcement
As the decision started seeping its way into the U.K. about Liz resigning from her post, the Pound slowly increased in value and went back to its initial stable position at $1.13. the currency held onto significant gains as her resignation was announced. As per most of the investors and analysts in the U.K, the economy’s future looks brighter without her in charge and anybody else in place is looked at as a better choice as of now.
Ten-year gilt yields also increased as the former PM’s resignation news soared. However, the political uncertainty and instability led to the UK markets witnessing a further bearish market momentum which has concern of converting into a recession. Especially because Sunak is the third PM announced in a span of a single year in the U.K, the political instability is not too favourable in terms of equity markets.
Will Truss’ exit bring back UK’s market to a more stable position?
Truss’ time as the U.K. prime minister led to significant damages in the U.K. economy, which brought the U.K. markets into shambles. Her vision was for the country to come out of trouble by going all in with a roundabout policy of growth and productivity. This would fend off the high cost of living crisis in the country and the ongoing recession. However, her aggressive policies turned out to be no good for the country and in fact, led it into a worse position altogether. Her reign as the PM piled even more financial burden on the country and households.
Financial markets fell massively due to her haywire economic policies; inflation was over 10% and is now expected to rise further if not curbed in time. The interest rates are going to shoot up as an expansionary monetary policy by the Bank of England to stabilise the British economy. Financial planning is now ever more challenging and has taken several U-turns. The only way to get out of it is to have strict government policies that focus only on the financial betterment of the country at large. The markets are expected to come back up if expansionary monetary and flexible financial policies are implemented on time.
What is next for the British economy?
By replacing Truss quickly, Sunak’s entry is expected to bring a brighter change in the U.K. economy. It is also likely that people will now be able to plan better and with more clarity in the future. The unmanageable debt, poor-performing investments, and failed retirement strategies can still be sorted if individuals start planning their finances effectively and get out of failing market positions before another major decision seeps in.
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