Up in Flames: Truss Damage Could Take Years to Correct, Say Experts

Liz Truss promised a bold approach and she certainly delivered, but going for growth growth growth also proved her undoing. What are the consequences?

Ollie Smith 20 October, 2022 | 3:10PM S.W. Mitchell Capital
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Growth in flames

Earlier this afternoon Liz Truss resigned as prime minister of the United Kingdom. You probably already know what’s happened and why, but here's what financial services thinks.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

First her policies went up in flames, then her brief career as prime minister. The great political gamble of Liz Truss has spectacularly backfired but not before wreaking significant damage to the UK economy. It will take considerable time before the risk premium attached to UK assets fades away, following the financial nervous breakdown which followed the mini-budget.

With the third prime minister in just a year expected to be announced by the end of the month, the UK will still be viewed in financial markets as politically unstable. What investors crave is more steadiness and reliability but until they know who will take charge and lead an economic recovery, that stability still remains highly elusive which means that neither sterling nor stocks are likely to make any big strides of progress.

George Lagarias, chief economist, Mazars

The market volatility following the mini-budget and Ms Truss's historic resignation should not be misinterpreted in the parochial context of the Conservative Party convulsions. We should look at the bigger picture, and the larger question, of whether Brexit Britain can deliver on its promises to both the electorate and its key economic stakeholders in a financially illiquid environment. Or is a wider course correction required to restore growth?

Sam North, market analyst, eToro

It’s not often that political machinations can have such a direct impact on personal finances. Even during Brexit the net effects were a slow burner in economic terms. But the crisis we’re now in warrants fast action from the Conservative Party to elect a new leader.

The longer a race takes, the more turmoil there could be for markets. UK gilts and GBP have reacted somewhat to her resignation, but we haven’t yet seen a big move. This might begin to change if the contest drags on.

Chancellor Jeremy Hunt is due to deliver a new Budget and Office for Budget Responsibility forecast on Halloween, but there is plenty of time for markets to spook before that, making his job tougher, and worsening conditions for households in terms of inflation and interest rate expectations and ensuing tax implications.

Andrew Megson, chief executive, My Pension Expert

Truss’ reign as Prime Minister has caused a tremendous amount of damage in a short space of time. Her vision was for the UK to punch its way out of trouble, going all-in on growth and productivity to fend off the cost-of-living crisis and impending recession. Unfortunately, she has merely piled more financial worries onto households across the country.

Financial markets have been put in a spin by wayward economic policy. Inflation is back above 10% and likely to rise further when the now only six-month price cap ends in Spring 2023. And the Bank of England has said that interest rates will rise faster than expected as it seeks a degree of stability.

Financial planning has been made very challenging. Take the multiple U-turns over the triple-lock pension – will the Government commit to it or not? How can people map out their financial futures with such inconsistency?

We can only hope that Truss’ replacement can quickly bring about calmness, clarity, and certainty, allowing people to effectively plan for the future. In the meantime, it is important that those worried about their finances, whether that is unmanageable debt, the performance of investments or their retirement strategies, seek out advice and support.

Mohsin Rashid, founding director, ZIPZERO

While brief, Truss’s premiership has caused economic damage that could take months if not years to correct. Her juggernaut vision for the economy was horribly misjudged and has exacerbated the financial burden on millions of families across the country. Inflation has returned to the 40-year high seen in July and the Bank of England is set to raise interest rates faster than anticipated.

The arrival of a new Prime Minister was meant to bring a new urgency in attacking the cost-of-living crisis; instead, it has swallowed millions of more families into financial ruin. It's unclear if the arrival of the next one will make things any better, but regardless, Truss' 44 days as PM have set the UK back significantly. Her replacement must take a hold of the energy crisis and stabilise the markets.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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