Proposed Deficit Spending Put The British Economy At Risk And Created Turmoil
October 20, 2022–British Prime Minister Liz Truss announced today she’ll be stepping down next week when her party chooses a new leader. She said she informed King Charles she is resigning as leader of the Conservative Party and head of the country’s government.
“This will ensure we remain on a path to deliver our fiscal plans and maintain our country’s economic stability and national security,” Truss said on Twitter.
It’s been a bruising time for Truss. She served a total of 44 days after Queen Elizabeth made Truss’s appointment to office official before peacefully passing away. As the country buried their beloved queen, an era of British strength faded with her.
Truss’s Thatcherism
Truss modeled herself on Margaret Thatcher, the country’s first female prime minister. Thatcher remade the British economy and became known as the “Iron Lady” for her determination and decisiveness.
Truss was determined too. She wanted to turn the British economy around in a similar pro-growth fashion as Thatcher. As her first order of business the lengthy British ceremonies for the monarchy, Truss presented a package of economic reforms centered on tax cuts for the highest earners. The problem is, Truss planned to support the tax cuts along with other expenditures in the budget with deficits.
Truss’s bad timing in ushering in bigger British deficits became immediately clear.
Economic Turmoil
The British pound not only lost its shine, it lost buyers. The Sterling fell sharply. In the beginning of the year, you would need $1.37 to buy one pound. By late September, you would only need $1.08.
Pension funds reportedly faced liquidity crises. The British bond markets experienced extreme volatility. Interest rates soared. The Bank of England intervened. Turmoil continued.
In late September, the International Monetary Fund issued a harsh rebuke against Truss’s plan for a “large and untargeted fiscal package” during a time when inflation is elevated. In its criticism, the fund said the Truss fiscal plan would “work at cross purposes” against monetary policy.
Political Turmoil
It was only a matter of time for politics to catch up with economic turmoil.
Her finance minister was the first to go, and Truss herself gave him the boot. Kwasi Kwarteng, a policy wonk known for his brilliance and narrow focus, stepped down last Friday. But sacking Kwarteng wasn’t enough to save herself from the public’s growing lack of confidence.
According to reporting by the Financial Times, at least a dozen Tory Members of Parliament asked her to resign. The Conservative Party plans to select a replacement next week.
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