British Prime Minister Liz Truss speaks in the House of Commons in London on Oct. 19.Jessica Taylor/AP
Britain’s Liz Truss resigned on Thursday, saying she would remain as Prime Minister until a successor had been chosen, which she said her Conservative Party would do in a leadership election to be completed within a week. The resignation came after she lost her interior minister, Suella Braverman, less than a week after she fired her finance minister; Braverman cited “serious concerns” about the government.
How markets are responding to Truss’s political crisis
British shoppers cut their spending sharply in September while public borrowing grew by more than expected, underscoring the challenge facing new finance minister Jeremy Hunt and whoever succeeds Truss as prime minister.
Hunt reiterated on Friday that the government will do “whatever is necessary” to drive down debt in the medium term.
“To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead,” Hunt said.
Confidence among British consumers remained close to the lowest level on record with households facing double-digit inflation, rising interest rates and political chaos.
Sterling fell on Friday, weighed by the economic and political uncertainty. Analysts reckon that markets will need some time to thoroughly shake off the political risk premium built over recent weeks.
The UK’s main equity indexes also dropped, as the poor retail sales figures and a jump in bond yields added to the weak sentiment following the tumultuous week in politics.
What’s behind the U.K. crisis?
Kwasi Kwarteng sits with Ms. Truss at the Conservative conference in Birmingham earlier this month.Hannah McKay/Reuters
Britain’s financial markets were plunged into turmoil on Sept. 23 after then-new finance minister Kwasi Kwarteng announced billions of pounds of unfunded tax cuts.
The Bank of England was forced into emergency bond-buying to stem a sharp sell-off in Britain’s $2.3-trillion government bond market that threatened to wreak havoc in the pension industry and increase recession risks.
Kwarteng’s replacement Jeremy Hunt on Monday scrapped “nearly all” of the economic plan and scaled back Truss’s vast energy support scheme, announced in September, in a historic U-turn to try restore investor confidence.
The BoE interventions have highlighted a growing segment of Britain’s pensions sector – liability-driven investment.