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October 20, 2022

Liz Truss resigns as PM: what next for the markets?

By Patrick Brusnahan

Liz Truss has chosen to resign as the Prime Minister of the United Kingdom after only 44 days in the role. As Liz Truss resigns, how will markets react? Patrick Brusnahan asks the experts

Giles Coghlan, Chief Market Analyst, HYCM

After just 44 days in office, it appears that the markets and a party in open revolt have sealed Liz Truss’s fate. Although Truss was brought into usher in an era of growth and ‘trickle-down economics’, her strong pro-growth policy was poorly timed, sending the UK bond markets into a sharp sell off as her policies fanned the flames of surging inflaton. To fend off instability, the Bank of England has even intervened in gilt markets, and it remains to be seen whether the central bank will now hike interest rates more quickly.

With all that in mind, Truss’s departure is likely to be mildly GBP positive, depending on her successor for the premiership. Already, the UK gilt market was supported as rumours of the prime minister’s resignation came to light this morning, which is a good sign for the pound’s stability.

Dan Boardman-Weston, CEO and Chief Investment Officer, BRI Wealth Management

The resignation of Liz Truss marks the end of a pretty shambolic period of government. The country and markets need certainty, stability and confidence during these highly uncertain times. Hopefully the conservative party can coalesce around a unifying candidate and government can get back to focussing on how to navigate the country through these turbulent times. Sterling, Gilts and equity markets have all fallen following the announcement whilst it remains unclear who will be the next Prime Minister. Hopefully once the runners and riders are known, markets will react more favourably and we can move into a period of greater political and economic stability.

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 a political implosion seemingly imminent, and expectations rising that Liz Truss’ minutes in power were numbered, the pound crept up in value, heading back towards $1.13. As she gave her resignation statement, it largely held onto gains. Sterling is highly sensitive to economic policy uncertainty and even though the ship Britannia will still be left largely rudderless, with a successor still to be chosen, as far as investors are concerned, the future is marginally brighter without her in charge. Ten-year gilt yields eased further today, as speculation soared about her resignation, a sign of tacit approval from the bond vigilantes who punished the UK by deserting its government’s debt as worries raced up about fiscal responsibility. However, on the equity markets, news of Truss quitting was met with another bout of nervousness, as political uncertainty conspired with worries about the impact of recession.

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.

Andrew Megson, CEO, 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.

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