Beyond Currency

The UK has its first Prime Minister of South Asian descent and its first Hindu Prime Minister. But perhaps most critically for the economy, it has a Prime Minister with a background in investment banking.

His experience means he can speak to City of London bankers in a language they understand and hopefully promote confidence in his policies.

The contrast with the previous Prime Minister and Chancellor of the Exchequer could not be starker. The performance of Sterling this week was an obvious sign that Sunak had restored the City’s confidence.

Another think tank that has lost credibility during the mayhem of the past eight weeks or so is the Institute of Economic Affairs, which originally planted the seed of trickle-down economics in her mind.

When Sunak spoke of mistakes being made by the earlier administration, he stopped short of naming and shaming the institute, who he used to use as a sounding board.

Successive Prime Ministers and Chancellors have all feared the publication of the Office for Budget Responsibility’s economic forecasts, which were due to be delivered next week.

Instead of the OBR report, Chancellor Jeremy Hunt will deliver a full budget statement on November 17th, accompanied by fresh economic forecasts from the OBR.

Rishi Sunak and Jeremy Hunt will bear the responsibility for repairing the damage caused by Liz Truss in the final days of her Premiership. But Sunak has promised to tackle the daunting prospect of more austerity with the utmost care.

It is hard to see how the Prime Minister can afford to provide the NHS with anything close to the amount of funding it will need but there may be some movement immigration, as Sunak is known to favor more liberal regulations.

Sunak rejected the Opposition calls for an immediate General Election. The rationale for an election is that since no one voted for the current Prime Minister, he does not have a mandate to govern. Such an argument is deliberately obtuse. It lends itself to American electoral rules rather than British.

Rishi Sunak made his first speech as Prime Minister yesterday. He admitted that ‘mistakes had been made’ by Truss’s administration, even if they were driven by good intentions.

Nevertheless, Sunak faces a challenge which makes the support he delivered during the first weeks of the lockdown look like child's play.

Interestingly, he has left Jeremy Hunt as Chancellor of the Exchequer, but Sunak will certainly have far more to say in the decision-making process than his predecessor.

According to the Bank of England, the economy will fall into recession either late this year or early next, while inflation continues to be a significant issue.

Yesterday’s data shows that the price of several household staples have risen by more than fifty percent over the past year – a direct result of the conflict in Ukraine which has seen crops wiped out and shipping routes disrupted.

One thing the Conservative Party can learn from the past eight weeks is that their membership is hopelessly out of touch with reality and can no longer be trusted to choose a leader who stands for modern Conservative values.

Liz Truss’s winning margin, which was less than that gained by either Boris Johnson or David Cameron, reflected the changing values of the membership.

It was entirely proper that Sunak should win the leadership unopposed, but now the tough task of restoring unity and confidence within the party begins.

There is a concern that Sunak’s victory will herald a return to the programme of austerity seen following the 2008 monetary crisis, although it is unclear whether the rise in National Insurance contributions reversed by Truss will be reinstated.

It is a sign of the times that Sunak has been chosen on both his reputation and personality rather than any one set of policies.

The battle to become leader of the Conservative Party should become clearer this week. Although, even if a leader is elected, there is no guarantee that they will command the full support of the parliamentary party.

Anyone considered for election must have the support of at least 100 MPs by 14:00 today. Only former Chancellor of the Exchequer Rishi Sunak has reached that level.

Former Prime Minister Boris Johnson has decided not to run, saying that he had the numbers, but it's not the time to split the party.

While the country is gripped by political confusion, the Bank of England is preparing to decide whether to hike interest rates and by how much.

The extended period of tightening is expected to continue. However, the Monetary Policy Committee still needs to decide whether the hike will be fifty or seventy-five basis points, given that headline inflation is now above 10%.

Rishi Sunak, who was defeated by Liz Truss in the ballot to be Conservative Party leader, is the hot favourite to replace her following her resignation yesterday.

Truss became the shortest-lived Prime Minister in history, lasting just 44 days. It is hard to understand how Conservative MPs could have got it so wrong. They elected someone patently out of their depth to lead them into the next General Election.

The rules of the ballot to elect a replacement were announced yesterday. Any candidate wishing to stand must garner the support of 100 MPs by this Monday. Voting will take place next week and the result will be announced a week from today.

There is a rumour that Boris Johnson will throw his hat in the ring, but that would be a retrograde step despite the former Prime Minister’s record of wooing voters.

The past 44 days have seemed like something from the pages of a fantasy, as Liz Truss brought in the most diverse Cabinet ever to deal with an issue that didn’t really exist. Her plans to grow the economy out of the current downturn by using a policy of trickle-down economics was doomed to fail.

It is difficult to imagine a scenario in which Liz Truss still is Prime Minister for more than another week. Her support is crumbling, and she is now being forced to adopt policies that she does not support just to stay in power.

When she won the ballot to be named leader, one of her staunchest allies was Suella Braverman who she made Home Secretary. It is a sign of just how far Truss has fallen that not only did Braverman use a technical indiscretion as an opportunity to tender her resignation, but she also felt the need to voice her feelings over the mistake that have been made in the past few weeks.

Grant Schapps grabbed the opportunity to fill one of the most senior roles in the cabinet with both hands.

While she never actually confirmed that she intended to remove the triple lock on state pensions, which was a Conservative Party manifesto commitment, it had become clear over the past few days that the pledge was under severe threat.

Truss confirmed yesterday, that the rate of state pensions would rise by an amount equal to the rate of inflation, which is clearly higher than either of the other two options which were average earnings and 2.5%.

Andrew Bailey, the Governor of the Bank of England, is not yet two years into his eight-year term in office. He was appointed a week before the first coronavirus lockdown started, which meant that from day one in the role he was faced with unprecedented market conditions.

As the markets were being battered by Covid, and the response to the Pandemic was being headed then Chancellor Rishi Sunak, Bailey initially flew under the radar. He didn’t build the same relationships with the market that his predecessor, Mark Carney had done.

As the Pandemic eased and inflation began to rise, Bailey found himself in the spotlight and was caught off guard by the pace at which prices began to rise and had to make unpopular decisions regarding interest rates.

He didn’t expect to be presiding over the end of an era of low interest rates, so was slow to react.

Although the MPC began its current cycle of interest rate hikes last December, the initial move was unpopular despite being just fifteen basis points, since it came immediately before Christmas.

Jeremy Hunt, the new Chancellor of The Exchequer, announced a mini budget of his own yesterday in which he reversed many of the tax cuts announced by his predecessor.

It must be presumed that Kwasi Kwarteng’s plans were approved by the Prime Minister, which led MPs to ask: who is running the country?

The issue was worsened by the fact that Liz Truss was initially absent from the House of Commons yesterday, although she did appear just as Hunt rose to deliver his plans.

The £64 billion hole in the country’s finances has been reduced by Hunt's measures and the long-term interest markets rallied, signaling their approval.

However, the reduction of the basic rate of income tax has been indefinitely shelved, and the much-vaunted reduction in the energy cap will now only last until the spring of next year.

Along with the total loss of credibility, Liz Truss has also ceded authority to the new Chancellor of the Exchequer, Jeremy Hunt.

Hunt, who was defeated early in the Conservative Party Leadership campaign, chose to back Rishi Sunak in the contest rather than Truss.

Having thrown her first choice for Chancellor under the bus, the Prime Minister named the most experienced member of the Cabinet as the fourth Chancellor this year.

As he faced the press on Friday for the first time, Hunt admitted that mistakes had been made and distanced both himself and the Government from the recent mini budget.

Truss appears to have almost completely handed over the reins of Government while she tries to regroup.