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British Prime Minister Liz Truss sacked a longtime political ally and backtracked on another of her signature tax proposals in an attempt to calm dysfunctional markets.
It didn’t seem to lower the temperature. Now, Truss is on such shaky political ground that some news outlets are wondering whether she’ll outlast a head of lettuce with a shelf life of 10 days.
What happened: Yesterday, Truss threw her finance minister, Kwasi Kwarteng, under the bus after just 39 days on the job, making him the second-shortest-serving leader in that role since 1945. Kwarteng (and Truss) were put on blast after unveiling a “mini” budget that contained unfunded tax cuts, which raised concerns about the UK government’s financial position.
Market mayhem ensued. After the mini budget was announced, investors staged a mini rebellion, selling off government bonds so ferociously that the Bank of England had to step in with an emergency bond-buying program to prevent a financial calamity.
At first, Kwarteng and Truss said they would keep calm and carry on with their plans. But the pressure grew so intense that Kwarteng ditched one proposed tax cut earlier this month, then yesterday Truss shelved another plan that would’ve reversed a corporate income tax increase. Now, about half of all the tax-cutting plans in that budget are in the trash can—er, rubbish bin.
Where do we go from here?
Leaders from both parties are calling this administration a 🤡 show. And while Truss may outlast the lettuce, her credibility perhaps has been permanently damaged by her flip-flopping.
The market chaos is impacting regular Brits, too. Already dealing with soaring inflation and an impending recession, they must now contend with jacked up mortgage costs that have risen along with bond yields. And unlike in the US, where homeowners can lock in a fixed-rate mortgage over 30 years, most of the UK’s mortgage rates reset every two or five years. So, when 2.4 million mortgage rates expire in the remaining part of this year and 2023, the people who have them could see their payments double, or even triple.—NF