November 2022

It has been a tumultuous year for the United Kingdom. Historically, a change at the helm of the British monarchy would dominate the headlines of The Sun and the Daily Mail for months, but that has not been the case. The ‘partygate’ scandal that marked the end of Boris Johnson was simply an entree with the tenure of his successor Liz Truss lasting just 44 days. When the English football team is not being spoken about in a World Cup year something is not right.

No Trust in Truss

Liz Truss’s month-and-a-half term as Prime Minister was the shortest in British history. At a time of economic instability and international uncertainty her attempt to implement expansionary fiscal policy failed miserably.

On the 23rd of September Kwasi Kwarteng, the Chancellor of the Exchequer, outlined the government’s ‘Growth Plan’ to parliament. What they failed to predict was the reaction of financial markets to unfunded tax cuts and a cap on energy prices. The British pound plunged to record lows against the US Dollar, the Bank of England was prompted into a bond-buying frenzy, the yield on 10-year gilts rose from 3.5% to 4.3%, inflation surged, and the London Stock Exchange fell sharply.

Truss tried to save herself by making Kwarteng the scapegoat but when his replacement Jeremy Hunt announced that the bulk of the PM’s economic strategy would be scrapped, the writing was on the wall. Despite declaring she is a “fighter, and not a quitter”, Truss resigned within days. It has become a common theme for the Conservative Party which has remained in power since 2010 despite the last four Prime Ministers (David Cameron, Theresa May, Boris Johnson and Liz Truss) all resigning.

Role of Financial Markets in Truss Resignation

The reaction of financial markets, actions of key financial institutions and subsequent resignation of the Prime Minister leave no doubt that they were a significant factor in the outcome. Inflation and the pandemic are global issues but there are additional factors in play in the UK and one of them is a fear of Brexit 2.0.

The financial services industry was one of the hardest hit by Brexit as the passporting rights of UK firms to access the EU single market were revoked. In excess of 400 financial institutions relocated outside of the UK taking some 900 billion pounds of bank assets with them.

What’s Next?

The political debacle surrounding Truss and the Conservative Party reveals that economic instability is here to stay, as is the risk associated with rising interest rates. It has also revealed the strength of the bond market and the influence that financial markets can have over fiscal policy, especially in circumstances where proposed changes are incredulous and implausible.

As for the English football team, they may have to wait until they get to Qatar to become top of the news headlines again.

Interesting Melbourne Data

Venue of interest: CÉ LA VI, Singapore

A trip to Singapore is never complete without visiting Marina Bay Sands. Renowned for transforming the city skyline, the resort offers breathtaking views, a signature rooftop infinity pool and a host of award-winning dining venues. At the top of that list is CÉ LA VI.

Located on the rooftop, the CÉ LA VI experience is an architectural marvel and the views don’t disappoint. The restaurant offers a diverse menu that includes contemporary local cuisine along with carefully selected international meat and seafood options. Those staying for the weekend can let their hair down at The Brunch Club. From 12-4pm on Saturdays and Sundays guests can enjoy a bottomless brunch, live DJ’s and percussion acts.