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UK Stocks and British Pound Remain in Focus After Liz Truss Steps Down as UK PM
October 21,2022 09:30:14Liz Truss resigned as the Prime Minister of UK, only 45 days after her appointment as the British premier. The resignation, which came amid political crisis and financial market turmoil, makes her tenure the shortest and most chaotic in UK’s history.
Why Did Truss Leave 10 Downing Street?
Liz Truss received heavy criticism for her economic programme, which called for unfunded tax cuts of around £45 billion. The announcement of her mini budget sent mortgage costs skyrocketing and led to a sharp sell-off in sterling and UK equities.
Although Chancellor Kwasi Kwarteng was dismissed and replaced by Jeremy Hunt, who scrapped most of the policies included in the mini budget, the damage had already been done. While investors were spooked by the mini budget, the complete U-turn in the fiscal plan in response to a market meltdown failed to instil any trust in the new government.
How Did the Markets Respond?
Investors cheered the resignation of Liz Truss, sending the FTSE 100 higher to just shy of the all-important 7,000 resistance level. The index had shed a little over 3% over Truss’s tenure. The GBPUSD forex pair climbed to 1.1221 almost immediately after the news. The British pound had lost more than 18% since the beginning of the year.
What Lies Ahead?
The end of uncertainty and prospects of a stable government could lend support to the GBP and FTSE 100.
Since the Conservative Party holds a majority in Parliament, there’s no immediate need for a nationwide election. The Party has until October 28 to elect and announce its new leader. There are speculations of Rishi Sunak, who lost to Truss only by a small margin, becoming the next UK premier. During the race to 10 Downing Street, Sunak had said he was opposed to massive tax cuts and wanted to tackle inflation first. London equities and the sterling may be supported by Sunak’s appointment as UK’s next PM.
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