LONDON — For Prime Minister Liz Truss, it was a chance to stabilize things after days of turmoil in financial markets over her new fiscal plan. It was her eight rapid-fire interviews with her local BBC radio station, from Leeds to Nottingham.
By the time Truss approved her last government on Thursday morning, her political woes had doubled and her new government was in a state of turmoil almost unprecedented in recent British politics.
Critics said she was like a robot defending a tax cut plan watered down by the market and showed little sympathy for the pain high interest rates could inflict on mortgage holders. described her as a “reverse Robin Hood”. Another station listener asked, “Are you ashamed of what you did?”
Just three weeks into the job, Truss suffered a dizzying loss of public support. A new poll by market research firm YouGov shows her Conservatives trailing the opposition Labor Party by 33 points. It’s the biggest Labor lead since Tony Blair took office in 1998, and the kind of gap that usually leads to landslide election losses.
Her plummeting poll numbers have severely damaged Mr Truss’ position in her party. remains complicated.
“This is the biggest and quickest blow to a party’s poll ratings that British politics has ever seen,” said Tim Bale, a professor of political science at Queen Mary University in London. , this is like realizing you’ve made a really bad mistake on your wedding night.”
Matthew Goodwin, a professor of political science at the University of Kent and Tory expert, said, “A British prime minister who, like Liz Truss, managed her first few weeks in office as poorly as I could have. I can’t imagine it as long as I am,” he said.
What makes Truss’s predicament so difficult is that none of the escape hatches are attractive. Reversing some of her tax cuts, especially those for top tiers earning over £150,000 (about $164,000) a year, will soften the market and perhaps some voters.
But it will be a psychological blow to leaders who have campaigned and built governments believing that tax cuts and supply-side policies would rekindle growth. Abandoning it undermines her government’s ideological rationale and could make her a lame duck leader until the next elections, which must be called by early 2025.
Mr Truss’ reaction so far, sticking to her argument leaves the UK economy a chance to recover by the time she faces her voters. But the stubborn inflation threat is all but a guarantee that the UK’s central bank, the Bank of England, will continue to raise interest rates. That could hit people in need of refinancing their mortgages and send the entire economy into recession.
British politics details
Prime Minister Liz Truss has been chosen by the split British Conservative Party to lead a country facing the worst economic crisis in a generation.
When asked by BBC Radio Stork about the impact of his financial plans on the housing market, Mr Truss paused, saying “interest rates are a matter for the independent Bank of England”. “Interest rates are rising all over the world,” she added, blaming much of the crisis on Russia’s war with Ukraine.
Over the past few days, the bank has actually helped Mr Truss to intervene in the market and buy British government bonds. That pushed interest rates down and helped the pound rise after it fell to its lowest level since 1985. On Friday, the pound he traded to $1.11.
But economists say the intervention stems from concerns that market turmoil will hurt UK pension funds, putting the Bank of England in an awkward position. This goes against banks’ monetary policy of raising interest rates to cool inflationary pressures.
“The banks had to subvert their purpose virtually overnight,” said Eswar Prasad, an economics professor at Cornell University. “Banks appear to be forced to clean up the negative effects of the UK Treasury’s actions.”
“This could have long-term implications for the independence, credibility and effectiveness of banks,” continued Professor Prasad. “It really hinders our ability to achieve that goal.”
Economists said they expect a return to tight monetary policy once the Bank of England completes its bond-buying program on Oct. 14. Economists say the only government action to forestall or moderate a sharp rise in interest rates is for the government to withdraw one or more of its tax cuts.
“Without a U-turn, banks would have to raise rates significantly,” said Adam S. Posen, a former monetary policy committee member at the Bank of England. He said banks needed to curb both inflation from the expansionary fiscal budget and additional inflation caused by the devaluation of the pound.
Beyond the tug-of-war between fiscal and monetary policy, critics say Truss faces a more fundamental problem. Treasury Secretary Kwasi Kwarten has lost market confidence in his economic management.
That’s partly because when Mr. Kwarteng announced the tax cuts last week, he didn’t submit the package to the scrutiny that government budgets normally face. This fueled concerns that tax cuts would be “underfunded” and not match spending cuts, requiring huge borrowings.
On Friday, Kwarten and Truss met in Downing Street with officials from the Office of Budget Responsibility, the government’s forecasting body. The Secretariat will submit projections on the cost of the fiscal program and its impact on UK growth on 7 October, but the government will not release figures until 23 November.
For Ms. Truss, the political fallout from her program’s failed rollout was severe. Political analysts point out that in the first phase of the party’s leadership election, she received only her one-third of the support of Conservative MPs. Now lawmakers are angry, scared and divided by the collapse of the polls.
Unless the trend reverses, many members of Congress will be wiped out of their seats in the next election, especially in the Midlands and northern ‘red walls’ districts lured by Mr Truss’ predecessor Boris Johnson. . Traditional Labor voters urged him to switch to the Tories on his promise to “get Brexit done”.
The restructuring of British politics is in jeopardy. Goodwin, a professor at the University of Kent, said those voters did not want Truss’ low-tax, neoliberal economic policies. Adding to her sense of alienation, she was determined to loosen immigration laws, another key issue for working-class voters.
“The Conservative vote is completely collapsing,” said Professor Goodwin. “We are losing middle-class voters alienated by Brexit and working-class voters alienated by economic policies.”
With all hands squeezed, it’s not immediately clear what the Tories can do about it. It’s been three months since Mr. Johnson was evicted from Downing Street, and few people want a protracted and divisive leadership contest.
Another option, Prof Bale said, would be for the party to agree to a consensus to replace Truss and pressure her to resign. The problem with this scenario, he said, is that there is no obvious candidate stepping into the role of the party’s savior.