UK: Prime Minister Truss

UK Economy

As expected, Liz Truss won the Conservative Party leadership contest (though not by as big a margin as expected). As many in the press have pointed out, she now faces a nightmarish in-tray.


One of Truss’s biggest areas of promised change is fiscal policy, from her promised tax cuts to cost-of-living support. The Times over the weekend reported a senior government figure saying the scale of package to support the economy in light of high energy prices being looked at would “at least” be in the region of the furlough scheme’s £69bn. Truss did not deny at the weekend that the total cost could reach £100bn. More recent press reports suggest a total package costing more than £100bn is being considered. She has said that she would make an announcement within the week on the issue of energy bill support. In terms of overall scale of fiscal support, it will be worth digging into the detail of any announcement rather than taking the headline figure at face value. That will especially be the case if any headline figure includes forms of loan guarantees that may or may not get drawn down.


On the Bank of England, Truss has emphasised that she supports Bank of England independence, but she has been saying that she will look at their mandate (currently centred around price stability and framed by the government as a 2% CPI inflation target).


Important timing this week then for commentary from the Bank of England’s Bailey. Governor Bailey, on Wednesday, alongside the Monetary Policy Committee’s Pill, Mann and Tenreyro, will face questioning from the Treasury Committee (a regular scheduled Monetary Policy Report hearing). He is likely to face questions both on the mandate issue, and of course on what a large fiscal spending package could mean for inflation and the path of interest rates…  


A large fiscal package could lower the likely peak of inflation, depending how it is structured (e.g. whether it includes universal bill freezes or VAT cuts which might be expected to lower headline CPI/RPI relative to where it would have been). However, a big package of support would also add more stimulus into the economy more broadly – reducing the risk of a serious recession, but also potentially increasing domestically driven inflationary pressure.




Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.

Leave a Reply

Your email address will not be published. Required fields are marked *