LONDON: British Prime Minister Liz Truss fired her finance minister Kwasi Kwarteng on Friday and scrapped parts of their economic package in a desperate bid to stay in power and survive the market and political turmoil gripping the country.

The pound and British government bonds fell as a chastened Truss held an eight-minute news conference in Downing Street, with economists and investors saying her reversal of 20 billion pounds ($22 billion) of tax cuts was unlikely to calm febrile financial markets.

Truss said she accepted she had gone “further and faster” than markets had been expecting during her 37 days in power.

“I have acted decisively today because my priority is ensuring our country’s economic stability,” she said. “I want to be honest, this is difficult. But we will get through this storm.”

Earlier in the day, Truss fired her finance minister and close friend, Kwasi Kwarteng, after he was forced to rush back to London overnight from IMF meetings in Washington.

The duo have been under mounting pressure to reverse a disastrously received economic package that forced the Bank of England to intervene in the bond market and prompted Conservative Party colleagues to openly discuss whether they should be replaced.

To replace Kwarteng, Truss appointed Jeremy Hunt, a former foreign and health secretary who had backed her rival Rishi Sunak in the race to become Conservative Party leader. He is the fourth finance minister in as many months in Britain, where millions are facing a cost of living crisis.

“This marks the first time in decades — since at least the 90s — that the financial markets have forced the government of a big developed economy with its own central bank to capitulate on core fiscal ambitions,” analysts said.

Kwarteng became Britain’s shortest serving finance minister except for a predecessor, Iain Macleod, who died suddenly in office in 1970. “You have asked me to stand aside as your Chancellor. I have accepted,” he wrote in his resignation letter to Liz Truss.

Fight for survival

Her own position is now in jeopardy. Truss is the fourth prime minister in six years of a country once seen as a pillar of the international community. The abrupt loss of her finance minister, along with her own fight for survival, marks the most turbulent period of British politics since the economic and industrial battles of the 1970s.

To add to the drama, the Bank of England plans to end its intervention in the gilt market.

Liz Truss won the Conservative Party leadership last month by promising vast tax cuts and deregulation to shock the economy out of years of stagnant growth, and the fiscal policy Kwarteng announced on Sept 23 aimed to deliver that vision.

But the response from markets was so ferocious that the Bank of England had to intervene to prevent pension funds being caught up in the chaos, as borrowing and mortgage costs surged.

“The party loves the idea of principles and conviction politicians, but staying in power is everything,” one party insider said. “Ruthless can also be popular.”

Having triggered a market rout, the prime minister runs the risk of bringing the government down if she cannot find a package of public spending cuts and tax rises that will appease investors and can also get through parliament.

Her search for savings will be made harder by the fact that successive Con­servative governments have been cutting departmental budgets for years.

Discipline within her party has all but broken down, fractured by infighting as it struggled first to agree a way to leave the European Union and then how to navigate the Covid pandemic and grow the economy.

One lawmaker said Truss could survive, but was “badly wounded” and risked alienating the right of the party which elected her. He described it as a “mess”.

“If you can’t get your budget through parliament you can’t govern,” Chris Bry­ant, a senior lawmaker from the opposition Labour Party, said on Twitter.

IMF rebukes Kwarteng

In Washington, Kwasi Kwarteng, the outgoing chancellor of the exchequer, was criticised by the head of the International Monetary Fund. He was fired minutes after arriving back in Downing Street from a flight back to London that was carried live by television news channels.

Another Conservative lawmaker said Truss’s economic policy had caused so much damage that investors may now demand even deeper cuts to rebuild confidence.

“The markets have lost trust in the Conservative Party and who can blame them?” said the lawmaker, who had backed Rishi Sunak for the leadership.

Published in Dawn, October 15th, 2022