As Truss heads for crucial Monday, signs are that U-turns will not be enough
The markets have tasted blood and are eager for more. Liz Truss has sacked Kwasi Kwarteng as chancellor and ditched another piece of the mini-budget announced less than a month ago, but she now faces another week in which financial turmoil and political intrigue create a toxic mix.
Monday will be a crucial day for the prime minister. If sterling heads towards parity with the dollar and rising bond yields put upward pressure on mortgage rates, Truss may soon be handing in her resignation to King Charles.
The signs are that the U-turns, the sackings and the reassurance won’t be enough. The Bank of England bond-buying scheme came to an end on Friday and Threadneedle Street is in no mind to restart it. Its intervention was all about providing pension funds with breathing space and it now believes they are more resilient as a result. The test for further Bank action is whether there is financial instability – a systemic threat – not whether there is market instability.
Jeremy Hunt has been doing his best to reassure the hedge funds that have been targeting UK assets that there is now a firm hand on the tiller. Difficult decisions on tax and spending will be necessary in the fiscal event planned for 31 October, he insists.
But the fact that Hunt is the fourth chancellor since July tells its own story. Even in the toughest times in the past, the UK had a reputation for political stability, but that reputation has been shredded.
Finance ministers and central bank governors attending the annual meetings of the International Monetary Fund and World Bank in Washington last week could scarcely believe what was happening on the other side of the Atlantic. The turmoil in the UK bond markets affected interest rates in the US, to the intense
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