It was confirmed yesterday that Liz Truss would be the new Tory party leader and therefore Prime Minister of the United Kingdom. In the end the outcome of the ballot of Conservative party members was closer than might have been expected. Rishi Sunak, Truss’ ultimate hustings challenger, achieved some ten thousand more votes than he was widely expected to receive taking his tally to over 60,000. However, there’s no prize for second place in this contest with Truss heading to number 10 and Sunak heading for the back benches.
Yesterday’s win for the incoming Prime Minster presented an opportunity to flesh out some of the controversial promises made during her campaign for party leader. In front of a friendly home audience comprise of her fellow party members, there was some expectation that we might learn more of what a Truss government will really look like. However, aside from thanking the team around her and a lukewarm reception to very warm farewell to outgoing PM Boris Johnson, there was little to be taken from the announcement. There were pledges made during her campaign for fiscally impactful changes to the UK’s tax composition and the public energy burden. With no such details emerging yesterday UK assets including the Pound may be vulnerable if no clarifications on such projects are forthcoming.
Currencies including the Pound will naturally be on the back foot in future months. We are undeniably ‘late cycle’ as the discussion surrounding the economy focuses on interest rate hikes and the sacrifice of economic growth. There has seldom been an example of late-stage macroeconomic cycles benefitting anything other than the Dollar with pro-cyclical currencies giving way to allow the greenback’s expansion. To buck the trend for GBP therefore the fiscal policies to be created by this new government must materially revise growth expectations higher. No small task and GBP should continue to exhibit a vulnerability until any such policy is forthcoming.
Discussion and Analysis by Charles Porter