In what has undoubtedly been an unprecedented year in British politics, the UK is faced with another new Prime Minister as Liz Truss announced her resignation from the post today after just 45 days in office.
Now the shortest-serving PM in history, and despite claiming to be a ‘fighter, not a quitter’ in yesterday's PMQ’s, Liz Truss has suffered a humiliating few weeks that would hardly have been believed this time last year.
The resignation comes following several weeks of financial missteps from the PM and her Chancellor Kwasi Kwarteng, in which the bond market suffered a severe enough sell off to warrant the intervention of the Bank of England, and a painful rise in mortgage rates. Truss had clearly hoped that by dismissing Kwarteng and bringing in Jeremy Hunt that she could buy herself more time to unite an increasingly fractured Conservative Party.
Following the resignation of the Home Secretary however and a chaotic vote on fracking yesterday evening, the PM’s time has run out and she will remain on as a caretaker PM only until a new leader is selected.
Markets have reacted positively to the news, but only to a minor extent. The pound has risen to a high of $1.127 this afternoon, but has dipped back since as markets react to the news. A new leader is currently expected to be chosen by next week in a bid to quickly replace Truss and avoid further political and market turmoil.
With such a fractured party however it’s difficult to see any potential leadership candidate uniting both the party and its members, and somehow leading the party until the next election. Other parties have also called for an immediate general election given the continual changing of leadership within the Conservatives, though it remains unlikely the government would want to risk this given recent polls.Political stability is of course an essential part of economic stability, and the volatility of recent weeks is doing little to help as the cost-of-living crisis continues, inflation remains above 10%, bond yields remain high, and mortgage rates risk a housing market crash. UK investors will be watching the next leadership battle closely, and what impact it will have on the pound in the final quarter of 2022.