# Britain’s political and market turmoil
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-10-18
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: UK PM Liz Truss Apologises for Economic Chaos
Meta Description: PM Liz Truss apologises for scrapping radical economic agenda, facing calls to quit after reversal of tax-cutting plans causing market turmoil.
URL: https://financedigest.com/britains-political-and-market-turmoil-2html

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LONDON (Reuters) – Prime Minister Liz Truss has apologised for threatening Britain’s economic stability after she was forced to scrap her economic agenda, with some Conservative lawmakers calling on her to quit.

Her apology came after her new finance minister Jeremy Hunt demolished the radical economic agenda she proposed less than a month ago, reversing her vast tax-cutting plans and flagging a programme of “eye-watering” public spending cuts instead.

Following is a snapshot of related events, comments and explanations:

[TRUSS U-TURN](https://www.financedigest.com/uk-leadership-favourite-truss-u-turns-on-pay-plan-in-first-big-misstep.html "UK leadership favourite Truss U-turns on pay plan in first big misstep")

\\* Truss said was sorry for going “too far and too fast” with her radical [economic plan](https://www.financedigest.com/uae-plans-long-term-economic-ties-with-israel-despite-political-strains.html "UAE plans long-term economic ties with Israel despite political strains"). Her apology came after weeks of her blaming the markets and “global [headwinds” for investors](https://www.financedigest.com/despite-the-headwinds-investors-have-important-reasons-to-be-cheerful.html "DESPITE THE HEADWINDS, INVESTORS HAVE IMPORTANT REASONS TO BE CHEERFUL") dumping the pound and government bonds.

\\* “I do want to accept responsibility and say sorry for the [mistakes that have been made,”](https://www.financedigest.com/tripling-the-size-of-my-business-in-the-pandemic-the-mistakes-made-and-lessons-learned.html "Tripling the Size of my Business in the Pandemic — The Mistakes Made and Lessons Learned") Truss told the BBC late on Monday.

\\* She said she was “sticking around” and that she would lead the Conservatives into the next election, but some of her [lawmakers are calling](https://www.financedigest.com/eu-lawmakers-call-for-summit-to-control-very-powerful-ai.html "EU lawmakers call for summit to control ‘very powerful’ AI") on her to quit.

\\* James Heappey, a minister for the armed forces, said Truss, his boss, could not afford to make any more mistakes. “To her credit, she has owned it and apologised,” he told Sky News.

MARKETS

\\* The [Bank of England dismissed on Tuesday a report in the Financial Times suggesting it was likely to delay once again the long-planned start of its sales](https://www.financedigest.com/gucci-banks-on-private-salons-for-the-ultra-rich-to-revive-sales.html "Gucci banks on private ‘salons’ for the ultra-rich to revive sales") of government bonds.

The BoE was forced to intervene in the government [bond market](https://www.financedigest.com/bank-of-england-says-it-will-unwind-bond-market-intervention-once-risks-have-subsided.html "Bank of England says it will unwind bond market intervention once risks have subsided") after Truss’s Sept. 23 “mini-budget” to prevent a collapse of [pension funds](https://www.financedigest.com/cash-crunch-for-british-funds-puts-regulators-under-pensions-lens.html "Cash crunch for British funds puts regulators under pensions lens").

\\* The BoE’s statement on Tuesday prompted a moderate [hit to British government bond prices](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC"), with the 10-year gilt yield GB10YT=RR rising 4 to 5 basis points as a result.

\\* The [pound was down 0.7% on the day](https://www.financedigest.com/royal-mail-says-uk-business-losing-one-million-pounds-a-day-amid-union-clash.html "Royal Mail says UK business losing one million pounds a day amid union clash") at $1.1277, having eased from Monday’s 12-day high of $1.144 GBP=D3.

\\* The UK’s main equity indexes [hit their strongest levels in more than a week](https://www.financedigest.com/sterling-hits-2-1-2-week-high-eyes-on-boe.html "Sterling hits 2 1/2 week high, eyes on BoE"), boosted by the government’s reversal. The blue-chip [FTSE 100 gained 0.9% to hit](https://www.financedigest.com/londons-ftse-100-hits-fresh-record-high-as-telecoms-surge.html "London’s FTSE 100 hits fresh record high as telecoms surge") its highest since Oct. 10 and the domestically focused [FTSE](https://www.financedigest.com/ftse-100-extends-gains-micro-focus-soars-on-buyout-deal.html "FTSE 100 extends gains, Micro Focus soars on buyout deal") 250 rose 1.0% to a level not seen since Oct. 5.

WHAT’S BEHIND THE CRISIS?

\\* The Bank of England was [forced into emergency bond-buying to stem a sharp sell-off in Britain’s](https://www.financedigest.com/britain-says-it-is-committed-to-leading-a-nato-task-force-in-2024.html "Britain says it is committed to leading a NATO task force in 2024") 2.1 trillion pound ($2.3 trillion) government bond market that threatened to wreak havoc in the pension industry and increase recession risks.

\\* The sell-off began after then-new [finance minister](https://www.financedigest.com/scottish-finance-minister-kate-forbes-to-run-for-countrys-leadership.html "Scottish finance minister Kate Forbes to run for country’s leadership") Kwasi Kwarteng’s tax-cut announcement on Sept. 23.

\\* After firing Kwarteng, a close friend and ally, on Friday, Truss announced that [corporation tax](https://www.financedigest.com/becoming-data-ready-for-mtd-for-corporation-tax-aligning-vat-and-ct.html "Becoming data-ready for MTD for Corporation Tax: aligning VAT and CT") would rise to 25% as intended by her predecessor Boris Johnson, reversing her earlier plan to freeze it at 19%. Kwarteng’s [cut to the highest rate](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies") of income tax had already been reversed.

\\* His replacement Hunt on Monday then scrapped “nearly all” of Truss and Kwarteng’s economic plan and [scaled back](https://www.financedigest.com/mifid-ii-why-you-should-not-scale-back-your-implementation-efforts.html "MIFID II: WHY YOU SHOULD NOT SCALE BACK YOUR IMPLEMENTATION EFFORTS") her vast energy support scheme, announced in September, in a historic U-turn to try restore investor confidence.

\\* The BoE interventions have highlighted a growing segment of Britain’s pensions [sector – liability-driven investment](https://www.financedigest.com/invest-in-infrastructure-to-escape-the-starvation-cycle-warns-leading-nonprofit-sector-strategist.html "Invest In Infrastructure To Escape The ‘Starvation Cycle’, Warns Leading Nonprofit Sector Strategist").

\\* LDI helps pension funds use derivatives to “match” [assets and liabilities to avert risks](https://www.financedigest.com/analysis-watch-out-risk-assets-the-rout-in-bonds-is-coming-your-way.html "Analysis-Watch out risk assets, the rout in bonds is coming your way") of shortfalls in payouts, but the soaring interest rates have triggered emergency collateral calls for those funds to cover the derivatives.

(Compiled by Raissa Kasolowsky, Editing by Catherine Evans and Gareth Jones)


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