Less than 40 days after taking office, British Prime Minister Liz Truss sacked her finance minister Kwasi Kwarteng and dismissed some of their contentious economic reforms in an effort to stay in power.
An embittered Truss admitted on Friday that her government’s plans for unfunded tax cuts had progressed “further and faster” than investors had anticipated, despite the turbulence in the financial markets.
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Here is everything that has happened since Truss became the United Kingdom’s prime minister:
Truss becomes UK’s PM
At a time when the UK is experiencing a cost of living crisis, industrial unrest, and a recession, former Foreign Secretary Liz Truss was elected leader of the ruling Conservative Party on September 5.
Truss, who had long been considered the favourite to succeed Boris Johnson, was elected as the fourth prime minister of the Conservative Party since the 2015 election.
Truss, 47, pledged to move swiftly to address the UK’s cost-of-living crisis, announcing that she would develop a strategy to deal with growing energy costs and ensure future fuel supply within a week.
Truss made it clear throughout her run for the presidency that she would defy economic convention by repealing tax increases and eliminating other levies that some analysts said would contribute to higher inflation.
Some investors would later sell the pound and government bonds as a result of that and a promise to review the Bank of England’s mandate while preserving its independence.
Truss appoints cabinet
Truss appointed a new cabinet on September 7 at the formal request of Queen Elizabeth II, just hours after taking office.
15 new people held key government roles as a result of the substantial reorganisation, while 16 members of the old cabinet continued to serve in the newly formed cabinet.
As chancellor of the exchequer, Kwasi Kwarteng was one of the most senior members. He took over for Nadhim Zahawi, who was hired in July.
Prior to becoming the first Black Conservative Party cabinet minister in January 2021, Kwarteng held the position of business secretary.
UK’s Queen Elizabeth II dies
The monarch, 96, passed away on September 8. The queen’s funeral was held on September 19 after a 10-day period of national mourning.
Kwarteng introduces mini-budget
The British government introduced a new mini-budget on September 23 in the parliament with the goal of reducing household taxes and energy costs while promoting economic growth.
Kwarteng’s comprehensive new budget would entail reductions to national insurance, stamp duty, and the top tax rate, marking the largest tax decrease budget since 1972.
According to Kwarteng, the budget would address three important issues: the assurance of the energy price, equal assistance for all businesses, and a financing plan for the energy markets.
A proposal was made to lower the highest rate from 45 to 40 percent and lower the lowest rate from 20 to 19 percent.
Chaos in UK’s financial markets
The UK’s recession-threatened economy was intended to be helped by Kwarteng’s tax cuts and energy price freeze, but merchants warned of soaring debt to pay for the incentives, which appeared to have the opposite effect.
Following the budget, the market was rocked by the massive unfunded tax cuts, which caused UK government bond yields to skyrocket and caused the pound to drop to a record low of $1.0350 on September 26.
Bank of England intervenes
The International Monetary Fund (IMF) announced on September 27 that it was “closely monitoring” developments and encouraged the London administration to reverse course in an extremely unprecedented intervention.
After the IMF criticised the UK budget, claiming it “would likely raise inequality” and worsen inflation, the Bank of England (BoE) intervened the next day to restore market confidence in the UK.
The BoE declared that it was temporarily purchasing long-term UK government bonds worth 65 billion pounds ($73 billion) “to restore orderly market conditions.”
Truss supports economic plan
On September 29, Truss defended her economic strategy and dismissed the disapproval of the financial markets, asserting that she is prepared to make “tough decisions” in order to stimulate economic growth.
Truss stated that the UK was experiencing “very, very challenging economic conditions” in her first public remarks following the commotion caused by the mini-budget.
However, she claimed that Russia’s all-out invasion of Ukraine was the cause of the difficulties, which were widespread.
Truss pull the plug on the new economic plan; sacks Kwarteng
The government made a humiliating U-turn and abandoned its ambitions to lower the highest income tax rate in the nation.
Truss was still under pressure to abandon more of the disastrous mini-budget, so on October 14 she replaced Kwarteng as chancellor with Jeremy Hunt and scrapped the company tax cut proposal, abandoning a crucial element of the economic strategy that had caused market chaos.
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(With inputs from agencies)
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