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British Prime Minister Liz Truss dies after 'trickle economy' U-turns

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British Prime Minister Liz Truss held a press conference at the Downing Street Briefing Room in central London on 14 October 2022.

Daniel Leal | AP | Getty Pictures

LONDON — British Prime Minister Liz Truss’s term in office is just six weeks away, and the political future of another Conservative leader seems at stake.

Truss on Monday said he regretted the mistakes made by his government and accepted the responsibility of “going too far and too fast” with the contentious “drop-down” economy approach.

The “lowered economy” theory is that tax cuts and benefits for the rich will eventually trickle down to everyone. The approach has been harshly criticized by political opponents in the UK and even US President Joe Biden, at a time when the UK is facing a deepening cost of living crisis.

Truss’s apology, whose “Trussonomics” policy stance has been likened to that of his political idols Ronald Reagan and Margaret Thatcher, followed one of the most extraordinary U-turns in modern British political history.

Newly appointed Finance Minister Jeremy Hunt on Monday dramatically smashed nearly all of the tax cuts Truss had promised, interrupting his flagship energy policy and making it clear that cuts in public spending were coming – something Truss said he “definitely” didn’t plan for just last week. do it

The Volte face shatters Truss’s economic vision, with five of his own Conservative lawmakers now openly calling for his resignation.

Truss insisted he would stay in office, telling the BBC he plans to fend off criticism from across the political spectrum and steer the Conservatives to the next general election.

Britain’s new Finance Minister Jeremy Hunt made big financial statements on Monday.

House of Commons – PA Images / Contributor / Getty Images

Kallum Pickering, senior economist at Berenberg Bank, said in a research note that Hunt’s end to “Trussonomics” now means that Conservative lawmakers will sooner or later replace the prime minister.

“The scrapping of much of the policy manifesto shows that he is in power only in name,” Pickering said, adding that it would not be surprising if British politics “get louder” in the coming days as the Truss government collapses.

“We’ve been here before with previous prime ministers. When the resignations begin and the credentials go to the party’s plenary, it’s usually a matter of time before the Prime Minister resigns.”

Pickering said that when choosing Truss’ replacement, Conservative lawmakers would likely choose someone with the confidence of the financial markets.

This could include former Finance Minister Rishi Sunak, who lost to Truss in the last leadership contest, or Hunt, whose “star seems to have risen by his recent performance,” Pickering said.

Growth outlook ‘pretty bleak’

Investor concerns were calmed earlier this week when Hunt rolled back nearly all of the controversial tax measures announced by his predecessor, Kwasi Kwarteng, on September 23.

The pound rose against the dollar on Monday alongside government borrowing prices.

Truss and Kwarteng sought to turbocharge Britain’s stagnant economic growth with unfunded tax cuts estimated at around £45bn ($50.7bn). The so-called “mini-budget” has triggered chaos in financial markets, an emergency response from the Bank of England, and several humiliating U-turns.

Truss fired Kwarteng amid mounting political pressure last week, but the market slump continued until Hunt stepped in on Monday.

“The growth picture is pretty bleak,” Daniel Vernazza, Unicredit’s chief international economist, told CNBC’s “Street Signs Europe” on Tuesday.

Vernazza said Hunt’s statements were designed to restore market stability, but did little to improve the UK’s growth outlook.

Vernazza said: “We’re having a huge problem with real incomes and high interest rates. There are a lot of headwinds facing the UK economy over the next 12 months.”

Is it a regular pass?

According to a recent poll by market research firm YouGov, opinion polls show that support for the Conservative Party is waning, with only 10% of Britons showing a favorable view of Truss.

For now, the ruling Conservatives still have a large parliamentary majority, and there is still another two years before a national election is held, in theory at least, Truss said.

However, analysts at political risk consultancy Eurasia Group give only a 10% chance of Truss remaining as prime minister.

“The consensus in Westminster is now too weak for the Prime Minister to do anything without the approval of the Chancellor. He can’t afford to lose another. Dismissal of his close ally Kwasi Kwarteng has not stabilized his position as he had hoped,” said Eurasia Group analysts.

KPMG head of tax policy says Truss' scrapped tax cut plan couldn't come at a worse time

“Given these pressures, Truss may admit that he is unfit for the job, and inform the 1922 committee chairman, Sir Graham Brady, that he wishes to leave the party with an orderly pass at a convenient time, with his dignity intact,” they added.

“Despite being inevitably shaken by events, the allies insist that Trussonomics is determined to continue its ‘duty,’ even though it is an open secret that it has destroyed itself. But the odds may rise if things go badly.”