Why did UK prime minister resign?
With UK Prime Minister Liz Truss announcing her resignation after coming under increasing pressure from Conservative MPs, Britain will soon have its third Prime Minister in three months. The United Kingdom was already in an Economic crisis. Markets were severely shaken by the Prime Minister’s financial proposals, which included unfunded tax cuts at their core and just a few days ago resulted in the Prime minister being replaced.
Addressing from behind a podium outside No. 10 Downing Street, where she had previously stood only 45 days prior, having just been named Prime Minister of the United Kingdom by the deceased Queen Elizabeth II, Liz Truss resigns as the prime minister of UK in front of a nation that had seen political unrest and economic turbulence throughout the summer and early autumn.
Complete Study of Liz Truss Resign
The departing prime minister claimed that when she took office, there was a great deal of economic and international unrest, and businesses and people were concerned about how they’d make ends meet. She claimed that the Conservative Party had given her the mandate to raise growth and cut taxes in order to tackle the “poor growth” that had been holding the U.K. back.
Liz Truss said that she had communicated to King Charles III and notified him of her intention to quit as the Conservative Party’s leader. Despite this, she remarked, “I realise that I will not be able to carry out the Conservative Party’s mandate given the current situation.”
The party will now have a leadership election in the upcoming week, which will be far quicker than the two months that it took this summer. Conservative lawmaker Graham Brady, who oversees leadership elections and shuffles, told reporters that he was now considering ways to incorporate Conservative MPs and other members of the larger party in the ballot.
Pound rises after Liz Truss’s resignation
The pound was trading at $1.128, up 0.6% for the day. It is still where it was on September 22nd, prior to Liz Truss’ market-moving budget. Gilt yields dipped at first but then levelled off for the day.
Mini-budget gone horribly wrong
U.K. prime minister resignation is the last punch to the present government, which has recently experienced a number of prominent resignations. Following a disastrous mini-budget that shook the markets, former chancellor Kwasi Kwarteng was forced to resign.
Suella Braverman, the Home Secretary, resigned too, reportedly because she did not follow security standards when sending an email. However, she had expressed “concerns” about the “direction” of the government in her letter, which was made public.
Shortly after U.K. prime minister Ms. Liz Truss’ resignation was made public, news broke that Boris Johnson, a former British prime minister, intended to retake No. 10. According to The Times, Mr. Johnson reasoned that it was in the “national interest.”
A number of Tory MPs tweeted and expressed support for Mr. Johnson, pointing that he was the only potential Liz Truss’s replacement who’d already won a general election and received a mandate across all
Several candidates from the August election resurfaced, especially former Chancellor Rishi Sunak.
Mortgage rates and the pension fund crisis
- The UK pension fund crisis was directly caused by the mini-Budget and the decline in gilt prices (and increase in gilt yields).
- Massive fear was sparked by the situation, and there were real concerns raised about the future of the pension funds.
- People with mortgages were forced to refinance or risk losing their houses due to a substantial increase in market interest rates.
- In a short time, prospective buyers discovered that even a new loan was far more expensive.
The market’s reaction
- Because of a substantial increase in borrowings during a period of uncertain growth prospects for the UK, the mini-Budget alarmed market investors.
- It suggested that the federal government might not be able to pay back the debts it racked up.
- Investors began liquidating all attainable UK assets in a fit of fear.
- Because of this, the value of the pound in comparison to the dollar dropped to historically low levels, which increased the cost of imports and worsened the imported inflation.
- Similarly, investors began dumping gilts because they were hesitant to lend funds to the UK government (government bonds).
- The Bank of England was forced to intervene quickly to prevent an economic meltdown.
U-turn after U-turn
- The U.K. prime minister Liz Truss grudgingly began making U-turn announcements as it became evident that the market would proceed to penalise UK assets only if Truss admitted her error.
- Liz Truss fired her chancellor, which was the largest blow.
- This prompted the politically inevitable question: How did Truss get to hold onto her position when she sacked Kwasi Kwarteng for merely expressing her economic proposals?
The next Prime minister will need to take additional steps to win back the confidence of the financial markets, according to Capital Economics’ top UK economist, Paul Dales.
In only a few short weeks, he wrote in a letter, “fiscal policy has shifted from being ultra-loose to less-loose to outright tight.”
All things considered, the UK prime minister resignation was a necessary step for the UK government to advance in its quest to regain the trust of the financial markets. However, there is still work to be done, and the new Prime Minister UK faces a difficult task in guiding the economy through the lack of affordable housing, rising borrowing rates, and rising cost of credibility.
According to the authors, the British economy was already deteriorating before the “catastrophic” mini-budget. In the near future, the country is likely to experience a decline in consumer spending, a strain on disposable incomes for households, a decline in employment, and rising interest rates “snuffing out” a turnaround in business investment, Think tank Pantheon Macroeconomics added.
The new UK prime minister will have to try to lay forth an economic and national plan that provides the nation some assurance and might even help the party achieve some degree of unification, but that is still the major question.
It will be interesting to see how the new UK prime minister threads a needle that promotes economic stability, preserves party solidarity, and fosters growth.