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Сheckmate – in an uneven fight, the lettuce beat Liz Truss. In less than two months in office, the recently elected prime minister resigned. What does it mean in addition to the fact that the authors of the first biography of Liz Truss will have to update a couple of chapters? A new wave of political uncertainty.
Markets, however, turned cautiously optimistic. On Thursday, Euro Stoxx 50 grew by 0.62%, FTSE 100 by 0.27%, and GBP/USD by 0.04%. The only exception was Britain’s 10-year gilt, which fell by 1.3%. In the meantime, the mood in corporate circles continues to deteriorate due to rising inflation, high electricity prices, and the fall in the flow of foreign tourists.
Unless things turn around soon, the political crisis could trigger capital flight, lower investment, and rising social tensions. The EY Item Club, a consulting firm, predicts that the economy will shrink by 0.2% each quarter. This will result in a 0.3% drop in GDP in 2023, instead of the 1% growth previously projected.
Who will take Liz Truss’ place? Among the 4 possible contenders: former Treasury chief Rishi Sunak; House of Commons leader Penny Mordant; Defense Secretary Ben Wallace; and Boris Johnson. According to Betfair, the highest probability of winning has Mr. Sunak.
What else is worth looking at? The Bank of England moved the start date of its quantitative tightening (QT) program to November 1. The regulator will cut the balance of government bonds worth 838 billion pounds ($948 billion). The QT will affect only government bonds with short and medium maturities.
And how are things in the rest of Europe? Over the last month, France, Germany, Belgium, the Czech Republic, and Hungary have faced a wave of protests. The reasons are all the same: high energy prices and rising living costs. Further deterioration of the situation will affect the euro as well.
