Having sealed her chancellor’s fate, the markets could seal the prime minister’s fate
So farewell, then, Trussonomics.
The demise of the country’s second shortest-lived chancellor also brings with it the demise of the country’s shortest-lived economic movement.
Liz Truss came into office promising to boost the country’s growth rate through a forensic combination of tax cuts, reforms to the country’s supply side (for which read: things like planning reform) and spending restraint. This was, if you squint a little bit, not dissimilar to the kinds of policies espoused by Ronald Reagan and Margaret Thatcher.
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It always looked risky – especially at such a fragile point for the global economy. We are coming to the end of a 12-year period of cheap money, something which is causing a near-nervous breakdown in financial markets. Central banks are in the process of raising interest rates and trying to feed the glut of bonds they bought during the financial crisis back in the market.
As if that weren’t enough, Europe is facing one of its bleakest economic winters in modern memory, with a war raging in Ukraine and energy prices touching historic highs. It is hard to think of many less auspicious periods to attempt an untested new economic manifesto.
Yet Ms Truss and her former chancellor Kwasi Kwarteng pushed on all the same. And unlike Thatcher, whose first few budgets were grisly austerity packages which no one much enjoyed, Ms Truss and Mr Kwarteng aimed to turn Thatcherism on its head. Instead of fixing the public finances first and then cutting taxes second, they opted to spend the fruits of economic growth before that growth had even been achieved.
The mini-budget of 23 September was a small document with extraordinarily large consequences. Ironically, the more expensive the measures were, the less controversial they turned out to be. The scheme to cap household energy unit costs will potentially cost hundreds of billions of pounds, yet (and we know this because it was pre-announced long before the mini-budget) investors barely batted an eyelid. They carried on lending to this country at more or less the same or equivalent rates.
The same was not the case for the rest of the mini-budget’s policies. Shortly after they were announced – everything from the abolition of the 45p rate (actually quite cheap in fiscal terms) to the cancellation of Rishi Sunak’s corporation tax rise – markets began to lurch in what was, for Ms Truss, and most UK households, the wrong direction. The pound sank, the yields on government debt, which determine the interest rates across most of the economy, began to climb.
That was bad enough. When Mr Kwarteng announced gleefully a couple of days later on television that he had more tax cuts up his sleeve, the trot out of the country became a stampede. The pound fell, briefly, to the lowest level against the dollar in the history of, well, the dollar.
Even more worryingly, those interest rates on government bonds rose at an unprecedented rate, causing all sorts of malfunctions throughout the money markets.
The most obvious – and the one that perhaps will have the longest legacy – is the rise in mortgage rates. But the unexpected consequences were even more worrying, among them a crisis in funds used by pension schemes. That sparked a “run dynamic” which compelled the Bank of England to step in with an emergency support scheme.
Even at this point, we were into unprecedented territory. Never before had the Bank been forced to intervene quite like this. Never before had it had to do so as a result of a government’s Budget.
The intervention, however, had some success, bringing down the relevant interest rates and bringing markets back from the edge. But there was a sting in the tail: a deadline. Today, 14 October.
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In hindsight perhaps it’s obvious that this, then, would always have been the day when the government might face another existential crisis. Investors were always going to be nervous ahead of the Bank’s withdrawal from this neck of the bond market. And that is precisely what happened: after the governor reiterated, on a panel in Washington, that he was indeed serious, all eyes then turned to the chancellor. Could he say something to reassure markets?
In the event, the answer was: no. But something else changed matters: growing rumours of a U-turn. That brings us to this morning. The chancellor, pulled back from Washington early, was dismissed. The U-turn began. The corporation tax freeze is to be abandoned. The coming medium-term fiscal plan will involve austerity and a big dose of fiscal pain. The upshot is that Trussonomics, which was hinged clearly on tax cuts like these, is dead in the water.
However, the bigger question concerns what happens next. Those markets, which Ms Truss said explicitly were the reason for her U-turn, are still pretty frantic. No one knows how they’ll fare on Monday, but, whether right or wrong, another grisly day will almost certainly be seen as a sign of the government’s failure. And, having sealed the fate of her chancellor, the markets could well seal the fate of the prime minister.
But that’s a few days away – a long time in both politics and markets.
Liz Truss appoints Jeremy Hunt as chancellor. Pic: Andrew Parsons / No 10 Downing Street
In the meantime, here is something to dwell on: an alternative version of history. In a parallel universe, Ms Truss and Mr Kwarteng did things slightly less hastily. They decided their emergency Budget would simply deal with the energy price shock coming this winter. They promised an OBR statement and hatched plans for a growth-generating budget in a few months’ time.
In that parallel universe, interest rates probably wouldn’t have risen so high. The rises would, anyway, have been blamed on the Bank of England, not the government. The government would have enjoyed some kudos for having prevented energy-related penury this winter and made merry in their honeymoon. Things could have been oh-so different.
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Now, all of this is of course imponderable. But it does rather underline an important point: none of this was inevitable. This wasn’t a crisis like 1992 – where the UK faced monetary pressures suffered by nearly every other nation in Europe. It was simply a succession of very unfortunate decisions at precisely the wrong moment.
At a time of market turmoil and war in Europe, Ms Truss and Mr Kwarteng chose to take a gamble. It did not pay off.
:: The new chancellor, Jeremy Hunt, will talk to Sky News tomorrow morning. Tune in from 7am on Saturday.
The UK government has announced more than £1.25bn in private US investment in the UK’s financial services sector ahead of US President Donald Trump’s second state visit.
The new US investments are expected to create 1,800 jobs and boost benefits for millions of customers across the country, the UK government said.
The deal secures £20bn in trade between the two nations – including an expected £7bn commitment from BlackRock, the world’s largest asset manager.
It is set to deliver more than £8bn in investment and capital commitments to the UK, with over £12bn flowing in the other direction – creating jobs and opportunities on both sides.
Other companies expected to invest include PayPal, Bank of America, Citi, and S&P Global.
Bank of America will create up to 1,000 new jobs in Belfast as part of its first-ever operation in Northern Ireland, the government said.
Citi plans to invest £1.1bn across its UK operations, while S&P Global will create 200 permanent jobs in Manchester through a £4m investment.
“Strengthening ties with the US boosts our economy, creates jobs, and secures our role in global finance,” Business and Trade Secretary Peter Kyle said.
“These investments reflect the strength of our enduring ‘golden corridor’ with one of our closest trading partners, ahead of the US Presidential State Visit.”
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Chancellor of the Exchequer Rachel Reeves said that the commitment from America’s leading financial institutions “demonstrates the immense potential of the UK economy”, as well as “our strong relationship with the US”.
The UK and US agreed a “landmark” economic deal in May, which secured major tariff reductions for key sectors and protected jobs in the automotive and aerospace sectors.
Discussions are ongoing with the US on a broader UK-US economic deal, aimed at increasing digital trade and strengthening supply chains.
MPs urge pressure on US over tariffs ahead of Trump visit
MPs have urged the government to apply maximum pressure on the US to obtain tariff relief ahead of Donald Trump’s state visit.
The Commons Business and Trade Committee described the upcoming visit as a crucial opportunity to push the US president to finalise the remaining terms of the economic prosperity deal.
While the UK and US reached a trade agreement in June that lowered tariffs on car and aerospace exports to the US, negotiations on British steel tariffs remain unresolved, keeping them at 25%.
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Committee chairman Liam Byrne said the state visit is “no mere pageant”.
“We can’t escape the truth that Britain now trades with its biggest partner on terms that are worse than the past, the EU has in places secured a better edge, and key sectors of our economy still face the peril of new tariffs. That means jobs hang in the balance and investment waits on certainty.”
The committee also called on the government to finalise agreements on aluminium and pharmaceuticals, ensuring that the terms accurately reflect the UK’s supply chain dynamics and its shift toward low-carbon production.
It emphasised that the UK should also use its partnership with the US to strengthen its position against China in areas such as artificial intelligence and defence technology, while also securing more resilient supply chains and improved access to critical minerals.
A government spokesperson said the “special relationship” between the UK and the US “remains strong” and that “thanks to our trade deal, the UK is still the only country to have avoided 50% steel and aluminium tariffs”.
“We will work with the US to implement this landmark deal as soon as possible to give industry the security they need, protect vital jobs, and put more money in people’s pockets,” the government spokesperson said, adding, “as well as welcoming the president on this historic state visit.”
The owner of Uswitch, one of Britain’s biggest price comparison platforms, and Zoopla, the online property portal, is plotting a break-up that could lead to the sale of some of Britain’s best-known consumer websites in the next 12 months.
Sky News has learnt that Silver Lake Partners, the American private equity firm, has hired two investment banks to launch a review of strategic options for the assets which sit within holding company ZPG.
This weekend, City sources said that JP Morgan and Arma Partners had been engaged by Silver Lake in recent weeks to advise on the project.
Although no firm decisions have been reached about the future of ZPG’s operating businesses, a series of sale processes for its various assets is seen as the likeliest outcome.
The most prominent of the group’s subsidiaries is RVU, a smaller holding company which owns Confused.com, the insurance comparison venture; Uswitch; Money.co.uk; mortgage brokerage Mojo Mortgages; and Tempcover, a temporary car insurance provider.
ZPG also has three other businesses: Zoopla, which sits behind Rightmove in the rankings of Britain’s biggest property portals; Hometrack, a property information site which also has common ownership with PrimeLocation.com; and Alto Software Group, which provides software services to estate agents through a further group of subsidiaries.
Silver Lake took ZPG private from the London Stock Exchange in 2018 in a deal worth about £2.2bn.
Since then, it has acquired a number of other businesses, and reorganised itself into four more independent entities which sit within the ZPG holding company.
A source indicated that there was “no particular path or outcome” for the strategic review to take.
Confused.com was added to the group in 2020 when it was absorbed by RVU following the brand’s acquisition from Admiral, the London-listed insurer.
ZPG has also sold several assets, including RVU’s international arm, in 2023.
Industry sources said there was little or no chance of ZPG being sold in one transaction, with its assets more likely to be offloaded through several processes operating on distinct timetables.
The valuation that ZPG’s subsidiaries might fetch in future sale processes was unclear this weekend, with some potentially worth less than their implied value in the 2018 takeover.
Many of ZPG’s businesses operate in markets which have come under increasing pricing pressure, with growing competition placing a tighter squeeze on margins.
Uswitch say they’ve saved consumers close to £3bn over 25 years
Uswitch, which claims to have saved consumers close to £3bn on their household bills since sits launch in 2000, is expected to attract interest from bidders, according to insiders.
Other mooted transactions in the price comparison sector, such as the sale of a minority stake in Compare The Market, have not materialised.
Moneysupermarket, which is now publicly traded under the name Mony Group, is among the other major players in the industry.
Accounts filed at Companies House for Zephyr Midco 2 Limited for the year ended December 31, 2023 showed group revenues of £451.5m, up from £391m the previous year.
It made an operating loss from continuing operations of £23.3m, against a comparable figure of £630.1m in 2022.
Silver Lake is one of the world’s biggest private equity firms, holding stakes in companies including Manchester City Football Club’s immediate parent, City Football Group, and the RAC breakdown recovery service.
Sky News revealed last month that the RAC’s owners were preparing to pursue a stock market flotation or sale of the company.
The buyout firm is also an investor in the New Zealand All Blacks’ commercial rights entity, following a protracted approval process.
Silver Lake declined to comment.
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