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.
Tory MPs turn on Truss as PM scrambles to save job after sacking chancellor – latest updates
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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Analysis: PM’s new tax U-turn
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.
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World
‘At least 798 killed’ at Gaza aid points – as medical charity warns acute malnutrition at all-time high
At least 798 people in Gaza have reportedly been killed while receiving aid in the past six weeks – while acute malnutrition is said to have reached an all-time high.
The UN human rights office said 615 of the deaths – between 27 May and 7 July – were “in the vicinity” of sites run by the controversial US and Israel-backed Gaza Humanitarian Foundation (GHF).
A further 183 people killed were “presumably on the route of aid convoys,” said Ravina Shamdasani, from the Office of the UN High Commissioner for Human Rights.
Its figures are based on a range of sources, including hospitals, cemeteries, and families in the Gaza Strip, as well as non-governmental organisations (NGOs), its partners on the ground, and Hamas-run health authorities.
Aid agency Project Hope said on Thursday that 10 children were among at least 15 people killed as they waited for its clinic in Deir al Balah to open.
Ten children were reportedly killed when Israel attacked near a clinic on Thursday. Pic: AP
The GHF has claimed the UN figures are “false and misleading” and has repeatedly denied any violence at or around its sites.
Meanwhile, Medecins Sans Frontieres (MSF) – also known as Doctors Without Borders – said two of its sites were seeing their worst-ever levels of severe malnutrition.
Cases at its Gaza City clinic are said to have tripled from 293 in May to 983 in early July.
“Over 700 pregnant or breastfeeding women and nearly 500 children are now receiving emergency nutritional care,” MSF said.
The humanitarian medical charity said food prices were at extreme levels, with sugar at $766 (£567) per kilo and flour $30 (£22) per kilo, and many families surviving on one meal of rice or lentils a day.
It’s a major concern for the estimated 55,000 pregnant women in Gaza, who risk miscarriage, stillbirth and malnourished infants because of the shortages.
The GHF began distributing food packages in Gaza at the end of May, after Israel eased its 11-week blockade of aid into the coastal territory.
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US aid contractors claim live ammo fired at Palestinians
It has four distribution centres, three of which are in the southern Gaza Strip.
The sites, kept off-limits to independent media, are guarded by private security contractors and located in zones where the Israeli military operates.
Palestinian witnesses say Israeli forces have repeatedly opened fire towards crowds of people going to receive aid.
The Israeli military says it has fired warning shots at people who have behaved in what it says is a suspicious manner.
It says its forces operate near the aid sites to stop supplies from falling into the hands of militants.
Read more:
GHF aid distribution linked to increased deaths
Gaza situation ‘apocalyptic’, says UN expert
After the deaths of hundreds of Palestinians trying to reach the aid hubs, the United Nations has called the GHF’s aid model “inherently unsafe” and a violation of humanitarian impartiality standards.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
In response, a GHF spokesperson said: “The fact is the most deadly attacks on aid sites have been linked to UN convoys.”
The GHF says it has delivered more than 70 million meals to Gazans in five weeks and claims other humanitarian groups had “nearly all of their aid looted” by Hamas or criminal gangs.
At least 798 people in Gaza have been killed while receiving aid in six weeks, the UN human rights office has said.
A spokesperson for the Office of the United Nations High Commissioner for Human Rights said 615 of the killings were “in the vicinity” of sites run by the controversial US and Israel-backed Gaza Humanitarian Foundation (GHF).
A further 183 people killed were “presumably on the route of aid convoys,” Ravina Shamdasani told reporters in Geneva.
The office said its figures are based on numbers from a range of sources, including hospitals, cemeteries and families in the Gaza Strip, as well as NGOs, its partners on the ground and the Hamas-run health authorities.
The GHF has claimed the figures are “false and misleading”. It has repeatedly denied there has been any violence at or around its sites.
The organisation began distributing food packages in Gaza at the end of May, after Israel eased its 11-week blockade of aid into the enclave.
It has four distribution centres, three of which are in the southern Gaza Strip. The sites, kept off-limits to independent media, are guarded by private security contractors and located in zones where the Israeli military operates.
Palestinian witnesses say Israeli forces have repeatedly opened fire towards crowds of people going to receive aid.
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US aid contractors claim live ammo fired at Palestinians
The Israeli military says it has fired warning shots at people who have behaved in what they say is a suspicious manner.
It says its forces operate near the aid sites to stop supplies falling into the hands of militants.
Read more:
GHF aid distribution linked to increased deaths
Gaza situation ‘apocalyptic’, says UN expert
After the deaths of hundreds of Palestinians trying to reach the aid hubs, the United Nations has called the GHF’s aid model “inherently unsafe” and a violation of humanitarian impartiality standards.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
In response, a GHF spokesperson told the Reuters news agency: “The fact is the most deadly attacks on aid sites have been linked to UN convoys.”
The GHF says it has delivered more than 70 million meals to Gazans in five weeks and claims other humanitarian groups had “nearly all of their aid looted” by Hamas or criminal gangs.
Ten children and two women are among at least 15 killed in an airstrike near a Gaza health clinic, according to an aid organisation.
Project Hope said it happened this morning near Altayara Junction, in Deir al Balah, as patients waited for the clinic to open.
The organisation’s president called it a “blatant violation of international humanitarian law, and a stark reminder that no one and no place is safe in Gaza“.
“No child waiting for food and medicine should face the risk of being bombed,” added the group’s project manager, Dr Mithqal Abutaha.
“It was a horrific scene. People had to come seeking health and support, instead they faced death.”
Operations at the clinic – which provides a range of health and maternity services – have been suspended.
Some of the children were reportedly waiting to receive nutritional supplements, necessary due to the dire shortage of food being allowed into Gaza.
Israel‘s military is investigating and said it was targeting a militant who took part in the 7 October terror attack.
“The IDF [Israel Defence Force] regrets any harm to uninvolved individuals and operates to minimize harm as much as possible,” added.
The deaths come as an agreement over a 60-day truce hangs in the balance – with President Trump cautiously saying it could happen “this week, or next week”.
Elsewhere in Gaza, the Nasser Hospital reported another 21 deaths in airstrikes in Khan Younis and in the nearby coastal area of Muwasi.
It said three children and their mother were among the dead.
Israel said its troops have been dismantling more than 130 Hamas infrastructure sites in Khan Younis over the past week, including missile launch sites, weapons storage facilities and a 500m tunnel.
On Wednesday, a soldier was shot dead when militants burst out of a tunnel and tried to abduct him, the military added.
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Do Trump and Netanyahu really get along?
Eighteen soldiers have been killed in the past three weeks – one of the deadliest periods for the Israeli army in months.
A 22-year-old Israeli man was also killed on Thursday by two attackers in a supermarket in the Israeli-occupied West Bank, said the Magen David Adom emergency service.
People on site reportedly shot and killed the attackers but information on their identity has so far not been released.
Read more:
IDF chief says conditions ‘created’ for Gaza ceasefire
What is the possible Gaza hostage and ceasefire deal ?
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Lack of food and water ‘lethal’ for Gaza children
Negotiations over a proposed 60-day ceasefire are ongoing and President Trump reportedly put “heavy” pressure on Israel’s leader, who visited the US this week.
A major sticking point is said to be the status of the Israel Defence Forces (IDF) inside Gaza during the 60-day ceasefire and beyond, should it last longer.
However, Sky News understands the Israeli government thinks the chances of a permanent truce are “questionable”.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
More than 57,000 Palestinians have been killed in the war – more than half are women and children, according to Gaza’s Hamas-controlled health ministry.
Its figure does not differentiate between civilians and fighters.
The war began in October 2023 after Hamas killed around 1,200 people in Israel and kidnapped 251 others.
Some of them remain In Gaza and are a crucial part of ceasefire negotiations, which also include a planned surge in humanitarian aid into the strip.
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