Prime Minister Liz Truss has fired Kwasi Kwarteng, her finance minister, after criticizing the economic strategy used to deal with the deteriorating economy.
The prime minister is currently considering leaving the proposal to save his image with domestic and foreign observers who have expressed their disappointment.
Kwarteng gave no negative feedback. In a tweet, the former Treasury secretary supported Truss’ decision, saying it was for the best. Kwarteng said he approved of the prime minister’s plans and vision.
Jeremy Hunt took over for Kwarteng. Hunt is Britain’s fourth finance secretary in less than three months. The government will hold a press conference in response to the current administrative decision.
Kwarteng released a spending plan three weeks ago that included deep tax cuts and government borrowing. Kwarteng hoped it would boost the country’s economy. Still, the move has drawn criticism, with experts saying it would further worsen inflation and drive up the cost of goods.
Unstable Economy
The Bank of England also said the proposal would lead to greater financial instability in the UK.
In addition, the bank has eased inflationary pressures on citizens, especially those who receive pension funds.
Multiple parties, like the International Monetary Fund, investors, government agencies and even members of Truss’s party, have doubted the tax cuts. Talks of removing her from her job have also surfaced, prompting Truss to make decisions to safeguard her political career.
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Kwarteng attended the IMF meeting in Washington before his expulsion. After the meeting, he rushed back to the UK to meet Truss to discuss critical challenges, including his sudden dismissal from office. Subsequently, Kwarteng’s time as finance minister is the second shortest in political history, lasting only 38 days.
Markets welcomed the UK government’s change in outlook. Now that market conditions are relatively better than before, markets are more receptive to policy adjustments that could improve the outlook for the UK economy. Correspondingly, the pound has increased to $1.12 from a historic low of $1.03 last month, while government debt has reduced from $5% to 3%.
Truss on Necessary Loss
According to Charlie Bean, a former governor of the Bank of England, Kwarteng’s departure may have been a necessary decision by Truss, given that the financial plan proposed by Kwarteng would not work.
With Kwarteng gone, Truss will need a new investment model as soon as possible. The proposal should address government debt and other concerns confronting the UK economy.
“What the markets want to see is a coherent picture, how it all fits together. In the absence of that, you’re going to see sterling and gilts coming under pressure again,” Bean said.
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Photo: US Insider
