News Item: UK PM on brink as political chaos deepens
Below are all the stories from UK politics from the last seven days.
UK PM on brink as political chaos deepens
Embattled British Prime Minister Liz Truss on Thursday faced more calls from her own party to step down after a key minister quit and lawmakers rebelled during “a day of extraordinary mayhem”.
Truss is being urged to resign just six weeks into office after a forced U-turn on disastrous tax cuts that caused a market meltdown during an already severe cost-of-living crisis.
Right-wing broadsheet The Times reported the prime minister was “clinging to power”, and cited a Truss supporter in her cabinet as saying: “It’s terminal.”
Its tabloid sister paper The Sun ran the front page headline “Broken”, saying Truss’s “authority is in tatters after a day of extraordinary mayhem”.
Conservative peer Ed Vaizey said the “only way out of this mess is for Liz Truss to stand down and for somebody to be appointed as prime minister by Conservative MPs.”
The party could avoid a lengthy leadership contest by consolidating around a single replacement, but Truss has shown no sign of being willing to resign.
If she resigned this would lead to a Tory leadership contest that could be shortened if Tory MPs could agree on a single replacement. Otherwise the MPs could unite to trigger a no-confidence vote.
– ‘Must leave’ –
The fresh calls came a day after Truss’s interior minister Suella Braverman left following just six weeks in office, ostensibly for sending an official document in a personal email but using her resignation message to attack Truss.
Her sacking was the second reshuffle this month after Truss sacked close ally Kwasi Kwarteng over the tax cut debacle, replacing him with Jeremy Hunt, who swiftly reversed almost all the policy announcements.
The Daily Telegraph reported that Braverman left after a “heated face-to-face row” with Truss and Hunt “over their demands to soften her stance on immigration”.
Truss appointed Grant Shapps to replace Braverman though had previously fired him as transport secretary when she took office. He had supported her rival for the leadership, Rishi Sunak.
Braverman, seen as a hardliner on immigration, said she had resigned over a “technical infringement” of government rules.
“I have made a mistake; I accept responsibility; I resign,” she wrote in her resignation letter, while adding she had “serious concerns” that Truss was breaking manifesto promises.
Truss has faced widespread criticism for failing to step down herself, after forcing Kwarteng to take the blame for the botched budget of September 23, which sent markets into freefall.
“Pretending we haven’t made mistakes, carrying on as if everyone can’t see we’ve made them, and hoping things will magically come right is not serious politics,” Braverman wrote, clearly hinting at Truss’s own behaviour.
– ‘Not a quitter’ –
Braverman’s resignation message came hours after Truss sought to dispel doubts over her leadership with a combative appearance in parliament.
Truss faced harsh putdowns from opposition Labour leader Keir Starmer as she took part in her first Prime Minister’s Questions since humiliating U-turns on tax cuts.
Starmer asked the House of Commons: “What’s the point of a prime minister whose promises don’t even last a week?” as opposition MPs jeered and booed Truss and her own party’s MPs remained silent.
Truss insisted that she would not stand down, saying: “I am a fighter and not a quitter”.
Later on Wednesday there were chaotic scenes in parliament as the opposition proposed a debate on Truss’s controversial decision to resume fracking — drilling onshore for gas.
Opposition Labour MPs alleged that Conservative MPs were physically forced to vote against the proposals by the whips who enforce party discipline while dozens failed to vote along party lines.
Opposition leader Starmer was set Thursday to make a speech at the conference of the TUC trade union federation.
Polls show Truss’s personal and party ratings have plummeted, with YouGov saying Tuesday that she had become the most unpopular leader it has ever tracked.
A separate survey of Conservative members found that less than two months after electing her as party leader and prime minister, a majority now think she should go.
Truss budget fiasco shows power of the markets
British Prime Minister Liz Truss’s humiliating budget U-turn shows how markets can wield influence over government fiscal policy.
The premier on Monday shredded her tax-slashing budget after it sparked markets chaos over rocketing state debt, as traders questioned the government’s credibility on public finances.
Truss was elected last month on a tax-cutting platform and her astonishing reversal prompted talk of a rebellion within the governing Conservative party.
The furore “is a rather extreme example of how markets react when a change in policy does not appear to be credible”, said economist Antoine Bouet at French economic forecaster CEPII.
– Not the first –
The Truss budget is not the first time that world governments have failed to overcome the verdict of markets.
Other examples include the pound’s exit from the gold standard in 1931 and from the Exchange Rate Mechanism in 1992, as well as the Asian financial crisis in 1997, analysts say.
Britain’s reversal has echoes of 1983 France, when socialist president Francois Mitterand switched to austerity in a major U-turn to restore market stability.
Truss’s flagship mini-budget on September 23 was aimed at boosting the recession-threatened economy and easing a cost-of-living crisis.
But her costly universal energy price freeze and tax cuts were financed by debt, fuelling fears of even higher inflation.
That sent UK government bond yields rocketing and the pound collapsing to a record dollar-low on debt concerns.
In reaction, the Bank of England launched an emergency bond-buying plan to help avert a financial catastrophe, while the International Monetary Fund urged a budget rethink amid a surge also in mortgage rates.
Three weeks later, Truss fired finance minister Kwasi Kwarteng and replaced him with Jeremy Hunt — who then axed most of the tax cuts, slashed the energy-price cap and warned of tough spending cutbacks.
“No government can control the markets but every government can give certainty about the sustainability of public finances,” Hunt said Monday as he took the axe to the budget.
– ‘Room for manoeuvre’ –
Bouet argued the markets did not dictate the political and economic policy, rather they reacted to it.
“There is a large amount of room for manoeuvre for governments, provided they do not go completely off the rails,” the economist told AFP.
The reaction would have been “on a smaller scale” if the UK had announced smaller tax cuts — or energy price assistance that was more targeted.
The market response was “brutal” because of “major inconsistencies”, Bouet said.
Truss’ budget was seen as adding to already sky-high inflation, which the Bank of England is struggling to bring down.
The BoE is set to deliver a super-sized interest rate hike next month after UK inflation hit a 40-year high of 10.1 percent in September.
Russ Mould, strategist at stockbroker AJ Bell, said the sheer size of bond and foreign exchange markets gave them a unique power to impact the UK economy.
– No ‘convincing plan’ –
“Financial markets can and will push governments around, especially if governments — or central banks — do something stupid,” Mould told AFP.
“Bond and currency markets are so large they can overwhelm almost anyone.”
Some have tried to take on markets, such as in 2012 when Mario Draghi — at the time head of the European Central Bank — vowed “to do whatever it takes” to save the euro.
Draghi helped avert a eurozone debt crisis, although the euro weakened significantly.
“The EU debt crisis is a good example where markets lost confidence in debt sustainability in various southern European countries,” noted analyst Kay Neufeld at research group CEBR.
The Truss budget drama “showed what happens if you surprise markets — and don’t have a convincing plan on how to pay” for costly measures.
Jeremy Hunt: softly-spoken survivor takes on hardest role
Newly appointed UK finance minister Jeremy Hunt is a mild-mannered political survivor who will require all of his considerable experience to calm an economy and government beset by chaos.
Hunt, 55, was health minister under David Cameron, and foreign minister under Theresa May, but found himself on the sidelines after Boris Johnson defeated him to become party leader in 2019.
After another failed leadership attempt this year following Johnson’s demise, Hunt suddenly finds himself thrust into the heart of the economic and political storm.
Under-pressure Prime Minister Liz Truss called him “one of the most experienced and widely respected government ministers and parliamentarians”.
“He will drive our mission to go for growth, including taking forward the supply-side reforms that our country needs,” she said on Friday.
Hunt hails from the centre of the Conservative Party, and his appointment indicates Truss wants to appease those MPs already plotting to remove her after her tax-cutting budget sparked market chaos.
He saw unbroken cabinet service from the Tory election victory in 2010 to his leadership defeat in 2019.
In government, he oversaw the London 2012 Olympics, was Britain’s longest-serving health secretary and proved a steady pair of hands as the UK’s top diplomat.
A supporter of remaining in the EU, Hunt was relegated to the backbenches when pro-Brexit Johnson took charge, although he was chair of the influential Health and Social Care Select Committee, which sought to hold the government to account during the pandemic.
However, he was also criticised for his pandemic planning while health chief.
As the culture, media and sport minister, he was under intense pressure to resign in 2012 over his contacts with Rupert Murdoch during a phone-hacking scandal involving the mogul’s media empire.
However, Hunt toughed it out and the judge-led inquiry into press ethics exonerated him of bias towards Murdoch’s News Corporation in its bid to take over broadcaster BSkyB.
– Surrey, Oxford and Japan –
Hunt was promoted to health secretary, one of the hardest jobs in cabinet at the time, as the government implemented long-lasting austerity measures in the wake of the 2008 economic crisis.
Hundreds of thousands of National Health Service workers went on strike in 2014 for the first time in 32 years following Hunt’s rejection of an across-the-board pay rise.
But he remained in the role as May took charge following the 2016 vote to leave the EU, only leaving when Johnson quit the Foreign Office in July 2018 over May’s Brexit policy.
As foreign secretary, Hunt set up the Yemen peace talks.
Born on November 1, 1966, Hunt is the eldest son of Admiral Nicholas Hunt, who was the fleet commander-in-chief from 1985 to 1987, one of the highest positions in the Royal Navy.
Hunt grew up in Godalming, southwest of London, and now represents the local South West Surrey constituency in parliament.
He was educated at Charterhouse, a prestigious private school.
Hunt went on to Oxford University, where he first became politically active as president of the Conservative Association, and was a contemporary of Johnson and Cameron.
He graduated with a first in philosophy, politics and economics.
– Big Rice –
After university, Hunt worked as a management consultant and later an English language teacher in Japan. He now speaks fluent Japanese.
Hunt had a successful career as an entrepreneur.
He set up Hotcourses, which puts prospective students in touch with universities and colleges.
Selling his stake made him a sterling multi-millionaire. He was elected to parliament in 2005.
He served as the Conservatives’ culture, media and sport spokesman in opposition then took over the brief as secretary of state when his party took office in 2010.
He is married to Lucia, who is from China. They have a son and two daughters.
They first met via Hotcourses as she was a Warwick University student recruiter. They married within a year in 2009.
She told The Mail on Sunday newspaper that he calls her “Precious” and she calls him “Big Rice” — based on her grandmother’s mispronunciation of Jeremy.
“He is kind, he is always generous, he cares about his family and he is very strong,” she said.
Shortly after being made foreign secretary, Hunt made perhaps his biggest blunder when he accidentally called his wife Japanese, on a visit to China.
UK's new finance minister admits 'mistakes', warns of tax hikes
Britain’s new finance minister warned Saturday of tax hikes to come as he admitted to “mistakes” made by his short-lived predecessor in a disastrous budget.
Jeremy Hunt was making his first comments to media following his appointment as chancellor of the exchequer by Prime Minister Liz Truss, whose own future is in doubt mere weeks after she took office.
“We will have some very difficult decisions ahead,” Hunt told Sky News, warning that “all government departments” face spending restraint.
“And some taxes will not be cut as quickly as people want. Some taxes will go up,” he added.
Tax cuts were the centrepiece of the budget announced by Hunt’s predecessor Kwasi Kwarteng on September 23. But they were financed through billions in more borrowing, causing panic on financial markets which has fed into higher costs for British households.
Truss fired Kwarteng on Friday and rowed back further on the planned tax cuts, but is facing threats of being toppled by senior Conservative MPs aghast at the party’s collapse in opinion polls since she replaced Boris Johnson on September 6.
“There were mistakes,” acknowledged Hunt, a former health and foreign secretary who is seen as a centrist Tory brought in by Truss to steady her listing ship.
Kwarteng and Truss had initially wanted to cut taxes for the highest earners, and had presented their budget without independent forecasts from the Office for Budget Responsibility, Hunt noted in summarising two key mistakes.
“The prime minister’s recognised that, that’s why I’m here.”
BoE chief has 'meeting of minds' with new UK finance minister
Bank of England governor Andrew Bailey said Saturday he had a “meeting of minds” with Britain’s new finance minister on the need to restore fiscal stability after a controversial budget plan caused market upheaval.
Speaking at a conference in Washington, Bailey warned against “flying blind” when setting fiscal policy but added that he and Britain’s new chancellor of the exchequer, Jeremy Hunt, saw eye to eye when they spoke on Friday.
“It’s not appropriate for me to constrain the choices he makes,” Bailey said. But he added that he had a “clear message for everybody, including a clear message for markets.”
“I can tell you there is a very clear and immediate meeting of minds on the importance of stability and sustainability,” he said at the G30 international banking seminar during the annual meetings of the International Monetary Fund.
Prime Minister Liz Truss sacked Kwasi Kwarteng as finance minister on Friday and abandoned a key plank of their budget, pledging to raise corporation taxes after all.
Kwarteng had rushed back to London from the IMF meetings in Washington, where the crisis lender’s chief had lectured him about the need for a “coherent” fiscal policy that does not undermine central bank efforts to contain inflation.
Hunt, a former foreign minister, admitted on Saturday that “mistakes” had been made, saying Kwarteng and Truss had erred in trying to cut taxes for the highest earners.
Presenting their plan without independent forecasts from the Office for Budget Responsibility, he added, amounted to “flying blind.”
The Bank of England had to launch an emergency bond-buying program to calm the markets following Kwarteng’s disastrous budget.
The Bank of England and other central banks have been raising interest rates aggressively in efforts to tame runaway inflation, which has soared as energy and food prices jumped following Russia’s invasion of Ukraine.
Bailey warned that the central bank may have to be even more aggressive.
“We will not hesitate to raise interest rates to meet the inflation target,” he said.
Sterling rises with UK finance minister set to unveil spending plans
Sterling rose Monday as Britain’s new finance minister prepared to announce new tax and spending measures aimed at calming markets after a botched debt-fuelled budget by his predecessor sent shivers through trading floors.
Jeremy Hunt was put in place on Friday after Prime Minister Liz Truss sacked Kwasi Kwarteng as she battles to save her political career just weeks after taking the keys to Downing Street.
Hunt is tipped to tear up the previous plans and warned at the weekend of tax hikes as he dramatically reversed course on right-wing Truss’ radical programme.
“It does indicate that they are moving back to some degree of fiscal probity and employing a slightly more prudent fiscal outlook,” said Peter Kinsella, of Union Bancaire Privee UBP SA.
The pound held above $1.12, having sunk Friday owing to the uncertainty in Westminster, while a news conference by Truss did very little to reassure nervous investors.
Bonds also rallied on the first day without the Bank of England support put in place in response to turmoil caused by Kwarteng’s mini-budget.
“There is no question that recent events have shattered confidence in the… current government, and trust once foregone is usually very difficult to get back,” said CMC Markets’ Michael Hewson.
“The wider question now is what happens next with respect to any new budget, and whether new Chancellor Jeremy Hunt can stabilise the ship at a time when global interest rates are rising anyway.”
The calm also lifted equities, with London in positive territory in the morning. There were also gains in Paris and Frankfurt.
Asia started the week in mixed fashion as Friday’s rally petered out.
The latest strong US inflation reading ramped up bets that the Federal Reserve will hike borrowing costs by 75 basis points twice more before the end of the year, stoking concerns the world’s top economy will flip into a recession.
All three main indexes on Wall Street finished sharply lower Friday.
There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid strategy of lockdowns that has hammered the economy this year.
“We expect that the existing Covid measures, that is the number of Covid tests, quarantine days, etc, will remain the same after the Party Congress,” said Iris Pang at ING.
“This will continue to put fiscal pressure on local governments, and when the number of Covid cases increase, we should keep seeing localised lockdowns.”
Traders are also keeping tabs on looming earnings reports, with expectations that higher rates and prices will have eaten into companies’ bottom lines.
Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan’s refusal to tighten monetary policy, citing a need to support the economy.
The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month.
Stocks, sterling extend gains after UK budget U-turn
Equities rose with sterling Tuesday after the UK government scrapped a controversial debt-funded mini-budget that had roiled markets, while traders were also cheered by a broadly positive start to earnings season.
After a volatile few weeks during which the pound hit a record low, new finance minister Jeremy Hunt sought Monday to reassure investors as he unveiled a new spending package, doing away with tax cuts and warning of much lower spending.
The move — which deals a blow to Prime Minister Liz Truss’s authority — sent sterling up as much as two percent at one point and the cost of government borrowing tumbled, while the FTSE 100 jumped.
The positive mood filtered through to other markets, with Wall Street enjoying a much-needed surge, including a more than three percent jump in the Nasdaq.
And most of Asia followed suit, with Tokyo, Hong Kong, Singapore, Mumbai, Bangkok, Sydney, Seoul, Wellington, Taipei, Manila and Jakarta all enjoying a pick-up, though Shanghai dipped.
London opened on the front foot along with Paris and Frankfurt.
The pound was also given an extra boost — at one point topping $1.14 — after a Financial Times report said the Bank of England will likely put off the sale of government bonds again as it looks to maintain market stability.
The Bank had been due to offload the gilts — bought to keep borrowing costs down during the pandemic — from October 6 but delayed that because of the turmoil sparked by the mini-budget, but the FT said it would likely delay again until financial conditions had calmed.
The market gains built on Monday’s rise, though analysts warned that the advances were unlikely to be sustained owing to broader worries about inflation and rising interest rates.
“The last couple of months have been tough for equity markets since peaking towards the end of the summer and a rebound of some kind was going to happen eventually,” said OANDA’s Craig Erlam.
“I’m just not convinced there’s much substance behind it as the economic landscape looks treacherous and we don’t even know if we’re at peak inflation and interest rate pricing yet. Those are substantial headwinds that will make any stock market rebound extremely challenging.”
The latest data out of New Zealand showing inflation remained at a three-decade high underscored the tough job central banks have in bringing prices down, even after several rate hikes.
Commentators said traders have come to the conclusion that a recession is on the way in major economies, with the main question being how bad it will be.
“I think we can stop saying inflation is ‘hotter than expected’ and shift to ‘hotter than hoped’ — because it really does feel like we’re all just crossing our fingers and hoping prices come down,” said Matt Simpson at City Index.
“And in the few cases that they are, it is clearly not fast enough for anyone’s liking. Conversely to the adage about stock market prices, inflation seems to get the elevator up and the escalator down — but not before lingering around the top floor for an extended period of time.”
Markets in China fluctuated a day after authorities delayed the release of third-quarter economic figures, which analysts said were likely to show the weakest growth since the pandemic owing to Covid-19 lockdowns.
The decision comes as the Communist Party holds a key gathering at which President Xi Jinping is expected to be handed a third term.
“Whenever the release occurs, we should all be prepared for some global financial market reaction if the world’s two largest economies are both in recession this year. Especially, as the global economic slowdown remains ongoing,” said Clifford Bennett at ACY Securities.
“While in China, we have a slightly artificially generated risk of recession due to a zero-Covid policy.
“This policy has been confirmed to remain in place indefinitely. This means China will see further economic disruption over the coming year.”
– Key figures around 0810 GMT –
Tokyo – Nikkei 225: UP 1.4 percent at 27,156.14 (close)
Hong Kong – Hang Seng Index: UP 1.8 percent at 16,914.58 (close)
Shanghai – Composite: DOWN 0.1 percent at 3,080.96 (close)
London – FTSE 100: UP 1.1 percent at 6,994.87
Pound/dollar: UP at $1.1357 from $1.1351 on Monday
Dollar/yen: DOWN at 148.99 yen from 149.03 yen
Euro/dollar: UP at $0.9858 from $0.9840
Euro/pound: UP at 86.80 pence from 86.66 pence
West Texas Intermediate: UP 0.4 percent at $85.82 per barrel
Brent North Sea crude: UP 0.3 percent at $91.89 per barrel
New York – Dow: UP 1.9 percent at 30,185.82 (close)
— Bloomberg News contributed to this story —
UK brings forward fiscal measures after budget turmoil
Britain’s new finance minister Jeremy Hunt will unveil tax and spending measures later Monday, bringing forward part of his fiscal plan to calm markets after a botched debt-fuelled budget.
Hunt, who was parachuted into the job on Friday to replace sacked Kwasi Kwarteng, will “make a statement bringing forward measures from the medium-term fiscal plan” that is due on October 31, the Treasury said in a statement.
Prime Minister Liz Truss fired Kwarteng on Friday after their recent tax-slashing budget sparked markets chaos, fuelling intense speculation over her political future just one month after taking office.
Monday’s measures “will support fiscal sustainability”, the Treasury added, after last month’s notorious mini-budget had sent bond yields spiking and the pound collapsing on fears of rocketing debt.
“This follows… further conversations between the Prime Minister and the Chancellor over the weekend, to ensure sustainable public finances underpin economic growth,” it added.
Chancellor of the Exchequer Hunt met with the governor of the Bank of England and the head of the Debt Management Office to discuss the plans late on Sunday.
– ‘Too far, too fast’ –
Following his shock appointment, Hunt hit the ground running Saturday with a warning of looming tax hikes as he dramatically reversed course on right-wing Truss’ radical programme of economic reform.
The mini budget, unveiled on September 23, went “too far, too fast”, Hunt said over the weekend.
And the Chancellor warned that he was “not taking anything off the table” amid speculation over painful spending cutbacks, but also defended the prime minister.
Yet the furore over the budget — which contained vast tax cuts and a costly freeze on domestic energy prices — has reportedly sparked a plot to oust Truss from Downing Street.
In the wake of markets turmoil, the BoE was forced to jump into markets as a result under an emergency bond-buying policy which ended on Friday.
Tax cuts were the centrepiece of the ill-starred budget.
But they were financed through billions in extra borrowing, causing panic on financial markets at the prospect of higher inflation, which has already left British households in the grip of a cost-of-living crisis.
Truss dismissed Kwarteng hours after he had rushed home early from international finance meetings in Washington — and she then staged another U-turn in acquiescing to a significant rise in profits tax levied on companies.
The premier had already abandoned a tax for the wealthiest earners, which had sparked outrage as millions of ordinary Britons suffer from decades-high inflation.
Senior Conservative members of parliament were reportedly plotting to unseat Truss, possibly within days, aghast at the party’s collapse in opinion polls since she replaced Boris Johnson on September 6.
– Trussonomics ‘gamble’ –
Monday’s news sent the pound climbing 0.4 percent against the dollar while the UK’s 30 year bond yield dipped slightly to 4.54 percent, as traders digested the news.
“New Chancellor Jeremy Hunt has the air of a troubleshooting teacher brought in to turn around a failing school and faces his first big presentation test today with an emergency budget plan wheeled out to try and calm financial markets,” said Hargreaves Lansdown analyst Susannah Streeter.
But she warned: “Trussonomics may have been ripped up and fed to the shredder — but the author of the big gamble remains in power, and has the final say on the direction of travel.”