Why did UK PM Liz Truss resign? Here is everything you need to know.
Liz Truss, the British prime minister, announced her resignation on Thursday. Her economic policy, which divided her Conservative Party and sent shockwaves through the markets barely six weeks after her appointment, was the cause.
Having lost her authority just over six weeks into the job due to the failure of her economic policy, Truss was struggling to hold onto her position.
The sequence of events that resulted in her resignation is shown here.
Recent occurrences, remarks, and context
Politics
Truss announced that the leadership of the Conservative party she leads would be chosen within a week.
Less than a week after sacking her finance minister, Truss lost her interior minister, Suella Braverman, which led to her resignation. “Serious concerns” about the government were voiced by Braverman.
Markets
After Truss quit, the value of the pound decreased. Midcaps in Britain increased by as much as 1%.
After a top official stated it remained to be seen if rates will rise as sharply as the market had been anticipating, investors reduced their bets on the Bank of England raising interest rates by a full percentage point next month.
In terms of the euro, the pound dropped to a one-week low, as GBP/USD traded above 1.1200 with a range of 1.1192-1.1240 during the Asian session. Wednesday’s three-day low was 1.1186.
Shares of homebuilders edged closer to a multi-year low touched lately as concerns over a worsening political crisis in the UK and rising interest rates globally kept London’s main stock indexes under pressure.
British inflation reached 10.1% last month, matching a 40-year peak reached in July, dealing people struggling with a cost of living crisis a fresh blow. This was mostly due to the highest increase in food costs since 1980.
Following a report that the finance minister, Jeremy Hunt, was evaluating the current surcharge on bank earnings, British banks are preparing for a prospective tax increase.
Why is there a crisis?
In order to stop a rapid sell-off in the 2.1 trillion pound ($2.3 trillion) market for British government bonds that threatened to devastate the pension industry and raise recession risks, the Bank of England was compelled to engage in emergency bond purchases.
After Kwasi Kwarteng, the then-new finance minister, announced a tax cut on September 23, the sell-off got underway.
Truss declared that company tax would increase to 25% as anticipated by her predecessor Boris Johnson, reversing her prior plan to freeze it at 19%, after removing Kwarteng, a close friend and ally, on Friday. The highest rate of income tax cut under Kwarteng had already been reinstated.
In a remarkable U-turn to try to regain investor confidence, his replacement Hunt on Monday cancelled “almost all” of Truss and Kwarteng’s economic strategy and cut back her extensive energy support scheme.
The BoE actions have drawn attention to a developing area of liability-driven investing in the British pensions industry.
While LDI assists pension funds in using derivatives to “match” assets and liabilities in order to reduce the likelihood of distribution shortages, the rising interest rates have forced those funds to make urgent requests for collateral in order to cover the swaps.
