Home Economy Truss tried to appease the British with a Media Blitz. Her woes multiplied.

Truss tried to appease the British with a Media Blitz. Her woes multiplied.

by SuperiorInvest

LONDON — It was a chance for Prime Minister Liz Truss to calm the waters after days of turmoil in financial markets over her new fiscal plan: eight quick interviews with local BBC radio stations from Leeds to Nottingham.

By the time Ms Truss signed off on the latest on Thursday morning, her political woes had multiplied and her new government was in a state of chaos almost unparalleled in recent British politics.

Critics say she has been robotic in her defense of a tax cut plan that has been gutted by markets and has shown little understanding of the pain high interest rates could cause mortgage holders. One host described her as “Robin Hood in reverse”. A listener on another station asked, “Are you ashamed of what you did?”

Barely three weeks into her job, Ms Truss has suffered a staggering loss of public support. Her Conservative Party now trails the opposition Labor Party by 33 percentage points, according to a new survey by market research firm YouGov. That is Labour’s biggest margin since Tony Blair’s early days as prime minister in 1998, and the kind of margin that usually results in a landslide election defeat.

Her plummeting poll numbers have badly damaged Ms Truss’ standing in her party, which meets in Birmingham on Sunday for its annual anxiety conference. Some are openly talking about the party ousting her before the next election, though the mechanisms for doing so remain complicated.

“This is by far the biggest and fastest hit to a party’s public opinion ratings that British politics has ever seen,” said Tim Bale, professor of politics at Queen Mary University of London. “For Tory MPs, it’s like realizing on your wedding night that you’ve made a really terrible mistake.”

Matthew Goodwin, a professor of politics at the University of Kent and an expert on the Tory party, said: “I can’t think of any British prime minister in my lifetime who mismanaged her first few weeks in office like Liz Truss.

Mrs. Truss’s problem is so difficult that none of the escape hatches are appealing. Reversing some of her tax cuts — notably cuts for the top income bracket of people earning more than 150,000 pounds, or about $164,000 a year — would reassure markets and likely some voters.

But it would be a severe psychological blow to a leader who campaigned and built her government on the belief that tax cuts and supply-side policies would reignite growth. If she gives it up, Professor Bale said, it would violate the ideological rationale of her government and potentially make her a lame-duck leader until the next election, which she has to call by early 2025.

Sticking to her guns, which has been Ms Truss’s response so far, leaves open the chance that Britain’s economy will pick up when she faces the voters. But the stubborn threat of inflation ensures that the Bank of England, Britain’s central bank, will continue to raise interest rates. This will hurt people who need to refinance their home mortgages and likely throw the broader economy into recession.

When asked by BBC Radio Stoke about the impact of her fiscal plan on the housing market, Ms Truss paused, saying: “Interest rates are a matter for the independent Bank of England.” She added that “interest rates are rising all over the world” and she largely blamed Russia’s war in Ukraine.

In the last few days, the bank has actually helped Mrs Truss by stepping into the market and buying UK government bonds. That lowered interest rates and strengthened the pound, which fell against the dollar to its lowest level since 1985. The pound traded as low as $1.11 on Friday.

But the intervention, which was driven by fears of damage to UK pension funds from a turbulent market, put the Bank of England in an awkward position, economists said. It is against the Bank’s monetary policy to raise interest rates to cool inflationary pressures.

“The bank has had to change course virtually overnight,” said Eswar Prasad, an economics professor at Cornell University. “It looks like the bank is being forced to deal with the negative consequences of the UK Treasury’s actions.”

“This could have some longer-term implications for the bank’s independence, credibility and efficiency,” Professor Prasad continued. “It really hinders her ability to accomplish her goals.”

Once the Bank of England completes its bond-buying program on October 14, economists said they expect it to return to its tighter monetary policy, which would signal another rate hike at its November meeting. The only government action that could prevent or even moderate a sharp rise in rates, economists say, would be for the government to reverse one or more of its tax cuts.

“Without this turnaround, the bank will have to raise interest rates a lot,” said Adam S. Posen, who served on the Bank of England’s monetary policy committee. He said the bank needed to contain both inflation from the expansionary fiscal budget and further inflation caused by the devalued pound.

In addition to the tug-of-war between fiscal and monetary policy, critics say Ms Truss faces an even more basic problem: her Chancellor of the Exchequer, Kwasi Kwarteng, has lost market confidence in her economic stewardship.

Partly because when Mr Kwarteng announced the tax cuts last week, he did not submit the package to the scrutiny that the government budget normally receives. This fueled concerns that the tax cuts were “unfunded”, meaning they would not be matched by spending cuts and would thus require massive borrowing.

On Friday, Mr Kwarteng and Ms Truss met in Downing Street with officials from the government’s forecasting agency, the Office for Budget Responsibility, in a move to signal they now welcome the review. The authority will present its projections of the cost of the fiscal program and its impact on UK growth on October 7, but the government will not release the figures until November 23.

For Ms Truss, the political impact of the bungled rollout of her program was profound. Political scientists point out that in the first phase of the leadership contest, she received the support of only a third of Conservative Party lawmakers. Now collapsing polls have left lawmakers angry, scared and divided.

Unless trends change, many of the party’s MPs will be swept out of their seats at the next election, particularly in the “red wall” boroughs of the Midlands and North, where Mrs Truss’s predecessor Boris Johnson lured her. traditional Labor voters to switch to the Conservatives with his promise to “end Brexit”.

This realignment of British politics is in jeopardy. Professor Goodwin, of the University of Kent, said these voters did not want Ms Truss’s neoliberal, low-tax economic policies. Adding to the alienation, he said, was her determination to loosen immigration laws, another key issue for working-class voters.

“We are witnessing a complete implosion of the Tory vote,” Professor Goodwin said. “They are losing middle-class voters who are alienated by Brexit and working-class voters who are alienated by their economic policies.”

For all the hand-wringing, it is not immediately clear what the Tories can do about it. Three months after Mr Johnson was evicted from Downing Street, few are willing to subject themselves to another protracted, divisive leadership contest.

Professor Bale said another option would be for the party to agree on a consensus alternative to Ms Truss and then pressure her to step down so a new leader can be crowned without any delay. The problem with this scenario, he says, is the lack of obvious candidates to step up to the role of savior of the party.

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