Five reasons why Liz Truss was forced to resign as UK PM – Five reasons why Liz Truss was forced to resign as UK PM

British Prime Minister Liz Truss had to resign after just 44 days in office

British Prime Minister Liz Truss had to resign after just 44 days in office. Raji’s resignation comes within a month of presenting the “Mini Budget”. Liz had to step down after criticism from her own party.

Liz came to power when the country was facing a crisis. On the one hand the economic crisis and on the other hand the challenges faced in the context of the war in Ukraine. Let’s examine the five reasons why Liz was forced to resign.

Mini budget

The Truss was working on an agenda to revive growth through sweeping tax cuts. Similarly, energy prices were guaranteed against inflation.

Rishi Sunak, Liz’s main rival and former chancellor of the exchequer, warned that an agenda of unfunded tax cuts and spending increases would lead to collapse.

On September 23, Liz’s chancellor and longtime friend Kwasi Kwarteng presented a mini-budget that also cut tax revenues. This was the beginning of a series of events that led to Liz’s downfall.

Market response

The increase in borrowing came at a time when the UK’s growth prospects were in crisis. In this scenario, the mini-budget scared market participants as there were indications that it might not be possible to repay the debts.

With this, investors started selling all possible assets. Likewise, the pound sterling fell to record lows against the US dollar. In the process importing worsens inflation because it increases the cost of imports.

Similarly, investors, unwilling to lend money to the UK government, started selling government bonds (gilts). As the price of bonds fell, their yield (or the effective interest rate that markets charge for lending money) rose. In the short term, the Bank of England had to intervene to prevent financial collapse.

A crisis in pension funds and mortgage rates

A direct result of the mini-budget and the fall in gilt prices was the crisis it created for UK pension funds.

Many pension fund managers have hedged against a sharp rise in interest rates. But the sudden spike in gilts meant their decision was wrong. This has caused great panic about the viability of pension funds.

A sharp rise in market interest rates means that home loan holders will either have to refinance or risk losing their homes. Owners find that a new loan can be very expensive in a short period of time. All this comes at a time when millions of people in the UK are struggling with a cost of living crisis.

Come back after the setback

After realizing that there will be a backlash in the market, Liz began to revise her decisions. One by one, she began to reverse her main ideas, such as cutting taxes on the super-rich. The biggest setback was the sacking of the Chancellor.

While this was seen positively by the markets, it raised political questions. The main question raised was why the Truss remained in place when Finance Minister Kwartung, who had only implemented Liz’s economic plans, was sacked.

The new Chancellor

The final steps in Lisa’s resignation came in the form of the actions of newly appointed Chancellor Jeremy Hunt. Once in power, Hunt ripped apart Liz’s agenda. As soon as Liz was in office, it became clear that power was in Hunt’s hands.