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Liz Truss’s big gamble on the U.K. Economy

Boris Johnson got Brexit done. Liz Truss faces the much harder task of making it work

By: N. Peter Kramer - Posted: Wednesday, September 28, 2022

The initial market panic over her plan wasn’t entirely her fault. The Bank of England’s anaemic approach to interest-rate hikes (it increased rates 50 basis points while the US Federal Reserve raised them 75) left the pound exposed.
The initial market panic over her plan wasn’t entirely her fault. The Bank of England’s anaemic approach to interest-rate hikes (it increased rates 50 basis points while the US Federal Reserve raised them 75) left the pound exposed.

N. Peter Kramer’s Weekly Column

Not since Winston Churchill took office as Hitler’s German Blitzkrieg rolled across Europe in May 1940 has a British prime minister faced such a turbulence in the opening days of her governing.

No sooner had the official mourning for Britain’s longest-serving monarch come to a close than the announcement of Liz Truss’s economic plans sent stock markets reeling and interest rates soaring and drove the pound to a record low against the dollar.

Like Churchill, Liz Truss must worry about back-stabbing Tory members of Parliament who distrust her and think her extreme.

And there is more. Britain faces a hash winter as he global energy crisis pushes heating prices higher than many households can afford.

The initial market panic over her plan wasn’t entirely her fault. The Bank of England’s anaemic approach to interest-rate hikes (it increased rates 50 basis points while the US Federal Reserve raised them 75) left the pound exposed.

The following ‘flash crash’ in Asian markets that briefly drove the pound to $1.03 came as the euro was also testing historic lows against the dollar.

The Truss plan certainly has merit. The race for growth is a brave one, and it reflects a fundamental truth that Margaret Thatcher understood: low productivity and low growth are the root causes of Britain’s decline.

The mix of supply-side reforms that Liz Truss proposes could, if markets and politics give them time to work, begin to address these problems. But the prime minister will struggle to persuade sceptics that she can stay the course.

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