Prime Minister Liz Truss declares her resignation at 10 Downing Street on October 20, 2022 in London, England.
Leon Neal | Getty Images
LONDON — U.K. Prime Minister Liz Truss resigned Thursday following a failed tax-cutting budget that rocked financial markets and which led to a revolt inside her own Conservative Party.
Truss was in office for just 44 days, making her the shortest-serving prime minister in British history. For 10 days of her premiership government business was paused following the death of Queen Elizabeth II.
She said in an announcement outside 10 Downing Street, “We set out a vision for a low-tax, high-growth economy that will benefit from the freedoms of Brexit.”
“I recognize though, given the situation, I cannot deliver the mandate on which I used to be elected by the Conservative Party. I actually have due to this fact spoken to His Majesty the King to announce that I’m resigning as leader of the Conservative Party.”
The party is now because of complete a leadership election inside the subsequent week, much faster than this summer’s two-month period. Graham Brady, the Conservative politician who’s in command of leadership votes and reshuffles, told reporters he was now taking a look at how the vote could include Conservative MPs and the broader party members.
Her resignation got here after a gathering with Brady, who chairs the 1922 Committee — the group of Conservative MPs without ministerial positions who can submit letters of no confidence within the prime minister. Just before the meeting, a Downing Street spokesperson told reporters Truss desired to stay in office.
Throughout the hour the meeting lasted, the variety of MPs publicly calling for Truss to step down reached 17. The number who had written letters to Brady expressing no confidence within the prime minister was reported to be greater than 100 by Thursday.
The pound was up 1% on the day against the dollar at 3:00 p.m., trading at $1.1214. It stays at the extent it was on Sept. 22, before Truss’ market-moving budget. The yields on 30-year, 10-year and five-year gilts (U.K. sovereign bonds) were all lower after Truss’ transient speech.
Opposition parties Labour, the Scottish National Party and the Liberal Democrats called for a direct general election on Thursday afternoon. Labour leader Keir Starmer said, “The Conservative Party has shown it now not has a mandate to manipulate.”
Controversial ‘mini-budget’
On Sept. 23, Truss’ finance minister, Kwasi Kwarteng, announced a so-called mini-budget which began a turbulent period for U.K. bond markets which balked on the debt-funded tax cuts he recommend. Many of the policies were reversed three weeks later by the second finance minister, Jeremy Hunt.
Truss beat Rishi Sunak to turn into leader of the Conservative Party following the resignation of Boris Johnson on July 7. Sunak is now considered one of the favorites to succeed Truss, together with Hunt, one other leadership contender Penny Mordaunt, Defense Minister Ben Wallace and former Prime Minister Boris Johnson.
The resignation leaves the status of the Conservatives’ expected budget update on Oct. 31 uncertain, but Truss said the leadership handover would “ensure we remain on a path to deliver our fiscal plans.”
In her statement, Truss suggested the legacies of her transient tenure were supporting households with energy bills and cutting the speed of national insurance, a general taxation in Britain. The cut was considered one of only a few measures of the “mini budget” to stay; while the energy support package, which was initially set to run for 2 years, was cut to 6 months.
She also said the U.K. had “continued to face with Ukraine and to guard our own security.”
U.S. President Joe Biden said in response to the news: “The USA and the UK are strong Allies and enduring friends — and that fact won’t ever change.”
“I thank Prime Minister Liz Truss for her partnership on a spread of issues including holding Russia accountable for its war against Ukraine … We’ll proceed our close cooperation with the U.K. government as we work together to fulfill the worldwide challenges our nations face.”
Regaining trust
Paul Dales, chief U.K. economist at Capital Economics, said the brand new PM would wish to do more to regain the trust of monetary markets.
“In only a number of weeks fiscal policy has swung from being ultra loose, to less loose to outright tight,” he said in a note.
“Overall, the resignation of Truss is a step that needed to occur for the UK government to maneuver further along the trail towards restoring credibility within the eyes of the financial markets. But more must be done and the brand new Prime Minister and their Chancellor have a giant task to navigate the economy through the associated fee of living crisis, cost of borrowing crisis and the associated fee of credibility crisis.”
Think tank Pantheon Macroeconomics said in a report on the U.K. Thursday: “A drawn-out recession lies ahead, now that overseas investors have lost faith in policymakers, forcing the [Monetary Policy Committee] to hike Bank Rate quickly and the federal government to tighten fiscal policy.”
The U.K. economy was already weakening before the “calamitous” mini-budget, the authors wrote. Looking forward, the nation faces a possible pullback in consumer spending, squeeze in households’ disposable incomes, lower employment, and better rates of interest “snuffing out” recovery in business investment, Pantheon added.
