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From financial crisis to inflation in Britain… Five big reasons for Liz Truss’s resignation

Liz Truss Resignation: Liz Truss resigned as Prime Minister of Britain on Thursday. Resigning, she said that she became the Prime Minister of the country at a time when the whole country is facing financial crisis. However, Liz Truss was facing opposition within her party for the past few days. It is believed that he was forced to resign. With this, the name of Liz Truss has been included in the list, who was the shortest Prime Minister in Britain. Let us try to understand why Liz Truss had to resign?

mini budget

On 23 September Truss’s chancellor and longtime friend Quasi Quarteng presented a mini-budget that essentially increased spending while cutting tax revenue. After this Liz Truss faced a lot of opposition within the party. It was believed that his economic policy would cause further damage to the country. Rishi Sunak had also predicted this decision of Liz Truss. He said that at a time when Britain is facing historically high inflation, it was the worst thing that could have happened.

market reaction

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The people sitting in the market were surprised by the introduction of the mini-budget. At a time when the UK government is not able to repay the debt, how can it take such a decision. The panic in the market increased so much that investors started selling all potential UK properties. The situation became such that the pound sterling fell to a historically low level against the US dollar. In such a situation, importing became more expensive. Similarly, investors reluctant to lend money to the UK government began selling gilts (government bonds). As the price of gilts fell, their returns (or the effective interest rate that markets charge for borrowed money) skyrocketed. In no time the Bank of England had to take steps to prevent the financial collapse.

Crisis in pension funds and mortgage rates

The direct result of the mini-budget and the fall in gilt prices was the crisis in pension funds in Britain. Many pension fund managers had hedged against sharp increases in interest rates, but the sudden jump in gilt yields meant they were on the wrong side of the bet; Worse, his property was losing gilt value. This created huge panic and genuine doubts on the viability of the pension fund.

The sharp rise in market interest rates also meant that people with home loans had to either refinance or risk losing their homes. Prospective owners found a new loan to become too expensive in no time at a time when millions of people in the UK are struggling with livelihoods and are concerned that in the wake of high energy prices How to stay warm in the coming winter.

U-turn on U-turn

The mini budget created a situation of economic fear among the market and the citizens of Britain. This was the reason why Prime Minister Liz Truss announced a U-turn. By taking one U-turn after another, he further lost the trust of the public and his party. The biggest setback came when he sacked his own chancellor. However, it was viewed positively in the markets. With this another question arose. The question was, why was Liz Truss eligible to continue when the chancellor had been fired? There was no real answer to this question.

new chancellor

Jeremy Hunt was appointed as the new chancellor after the removal of Quasi Quarteng. In the lead-up to the battle for leadership, Hunt sided with Sunak. As soon as he took office, he dismantled everything that was left of the truss agenda. It soon became clear that there was Liz Truss in prime minister position, but Hunt in power.

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