According to Antoine Bouvet, an interest rates strategist at the International Ditch Group (ING), investors will expect Truss’s successor to continue with her economic policies, although it may be too early to be certain.
Whoever the new Prime Minister may be, they will have to deal with a plethora of economic problems. For starters, wages are not catching up to the ever-increasing food prices, resulting in a sharp increase in the cost of living and a subsequent decrease in consumer spending. The war in Ukraine is keeping energy prices up, while interest rates are expected to rise.
During her six weeks as Prime Minister, Truss hired Kwasi Kwarteng as Chancellor of the Exchequer (head of the Treasury), who announced increased spending along with tax cuts. As a result, the pound plummeted to a record low value. Ultimately, Kwarteng was replaced by Jeremy Hunt, but bond yields were still up 0.41 percent from 3.50 percent from September 22.
By the end of October, Hunt is expected to announce a medium-term fiscal plan with spending cuts. The Office of Budget Responsibility will come out with a separate report detailing the impacts of Truss’s policies on the British economy. Economists are worried about potential austerity measures, or policies meant to reduce budget deficits through spending decreases or tax increases. These contractionary policies would make it difficult to support citizens impacted by the economic downturn.
On November 3, the Bank of England is expected to announce that interest rates will rise to more than 5 percent next year, from this year’s 2.25 percent; however, the rise in interest rates may not be as drastic as expected, as the British economy is also expected to contract 0.3 percent next year, down from a 3.6 percent increase this year. The recession may even worsen due to long-term economic problems that Britain has faced, such as low productivity growth and little investment.
Overall, experts say that the British economy is worse off after Truss than it was before, and that the economy may take a while to recover.
