Friday saw another turbulent day in the United Kingdom as Prime Minister Liz Truss removed her Chancellor Kwasi Kwarteng from office. She announced the news during a press conference where she also announced that she would cancel her plans to scrap the corporation tax increase from 19% to 25% next year. The tax increase was initially announced by her Tory leadership race rival Rishi Sunak whom she heavily criticised at the time for suggesting a tax increase. During her very brief press conference where she only “replied” to 4 questions, she also announced that her new Chancellor, Jeremy Hunt, would announce the fiscal plan at the end of the month, making him the 4th Chancellor in 4 months.
Liz Truss’ press conference on Friday made gilt yields return on the rise again as the lack of details around her plan and the relatively small scale of the U-turn did not reassure markets. She also did not convince several Conservative MPs sending letters of no confidence just after taking office. However, current rules of the 1922 Committee say that a no-confidence vote would have to wait until September 2023, with several MPs already calling on a change of the rules.
The crisis continues in France where two refineries have been seized by the government. This weekend, between 30,000 and 140,000 people manifested against rising costs, led by several opposition leaders such as Jean Mélenchon, the last presidential election finalist. A number of strikes have also been announced for this week, putting more pressure on an economy that stands at an inflation rate of 5.6%, the lowest in the eurozone, but with limited growth so far over the year with 0.3% growth in Q1 and 0.5% growth in Q2.
Last week saw the pound recover from its recent losses with Cable opening at 1.1084 and reaching a high of 1.1381. However, Liz Truss’ announcements failed to reassure markets and cable closed at 1.1170.
The story is similar on GBPEUR where the rate opened at 1.1376 on Monday and closed 1.1488 on Friday, with a high of 1.1619 midweek.
EURUSD remained more stable last week with the dollar strengthening again. The rate opened at 0.9736 on Monday and closed at 0.9719 on Friday.