Does Liz Truss Threaten Our Economy?

Date 13 Oct 2022

Liz Truss has refuted claims made by detractors that she is harming the UK economy. Widespread criticism has been levelled at the new Prime Minister's economic initiatives, particularly in light of the government's humiliating U-turn on proposals to eliminate the 45p income tax rate for the top incomes.

Since she took office as prime minister on September 6th, the UK's economic crisis has worsened. Her opponent in the leadership competition, Rishi Sunak, had expected this, calling her proposals "fairytale economics."

Mini-Budget shock

Chancellor Kwasi Kwarteng unveiled their mini-budget two weeks into their terms in office. Among the economic initiatives was the elimination of the 45p-per-pound tax rate for anyone earning more than £150,000 per year. The economy experienced shockwaves as a result.

The pound plunged on September 23rd, losing 3% versus the US dollar as it plummeted below $1.09, immediately after the mini-budget. Additionally, the euro/pound exchange rate declined by 0.75%. The pound dropped to an all-time low of $1.0327 against the US dollar three days later, on September 26, marking its lowest level since Decimal Day in 1971.

Later, after the International Monetary Fund took the unprecedented step of denouncing the proposals and declaring that they would "raise inequality," the PM was forced to reverse the policy move regarding the elimination of the 45% income tax. Truss and her Cabinet colleagues would have reaped financial rewards from the change, among others.

Additionally, there are plans to reduce the basic income tax rate to 19% starting in April 2023 rather than April 2024 as previously mentioned. The government also announced a six-month energy bill freeze, which is expected to cost £60 billion. The freeze is intended to bring inflation down by 5%.

The government will start rolling back the 1.25% national insurance increase that Boris Johnson enacted in April 2022 on November 6th. The introduction of a Health and Social Care Levy in April 2023 as well as concurrent plans to raise company tax from 19% to 25% have also been abandoned.

What were the consequences for the economy?

Following Kwarteng's later statement of a U-turn on eliminating the highest income tax rate, the pound once again increased to pre-budget levels of $1.13 after steadily declining against the US dollar. It increased once more to $1.14. following the chancellor's announcement that a report from the Office for Budget Responsibility would be released.

The announcement by the chancellor to forward both the OBR forecast and his medium-term fiscal plan was referred to in the press as the "government's latest about-turn." On November 23, he was scheduled to reveal new economic stimulus measures. On October 10, he revealed that he was moving this up to October 31. He claimed that it would give the OBR time to record data releases, such as the Quarterly National Accounts, and allow for the creation of a medium-term fiscal plan.

More information on how the policies outlined in the mini-budget will be funded is anticipated to be included in the forecast. The Bank of England has stated that it will "not hesitate" to raise interest rates and that it is "watching developments closely," so for Truss's detractors, the harm has already been done.

It won't meet again until November to talk about interest rate levels, though. The bank will have to make a "strong monetary policy response," according to chief economist Huw Pill. Following the mini-Budget, the bank has already started a £65 billion bailout to prevent pension funds from failing.

There are rising concerns that interest rates may rise as a result of the withdrawal of several mortgage packages by numerous banks and building societies throughout the UK. New client mortgage offers from the Skipton Building Society and Virgin Money have been terminated, while all mortgage offers from the Bank of Ireland have been discontinued.

The fixed rate mortgages offered by the Nationwide Building Society have already increased by 0.90% to 1.20%. By September 29th, a total of 40% of all mortgage offers had been pulled from the UK market. For the first time since 2008, the usual interest rate on a fixed-rate, two-year mortgage has increased above 6% on October 5th.

What follows is what?

Truss briefly acknowledged the status of the UK economy after the chancellor announced £45 billion in tax cuts. When questioned if her own administration was to blame for the issue, she said it was "extremely crucial" that they take "immediate steps" to reduce the expenses households were bearing this winter.

The freeze should result in an annual energy cost for the typical household of no more than £2,500, up from £764 in 2021. Without the government's intervention, it was anticipated to rise to £3,500 a year. Truss stated that the government borrowed money to implement the energy price guarantee and added, "I realise there has been disruption," in regard to the economy. She also justified the choice to announce the mini-budget without the accompanying prediction from the Office for Budget Responsibility, stressing the pressing need to address rising energy prices.

S&P, a company that conducts financial research and analysis, projects that the UK's GDP will decline by 0.4% in 2023. Additionally, it holds that the UK has already entered a "mild" recession. However, financial assistance programmes like the Energy Price Guarantee's bill-freezing policy will greatly shield customers from the effects of even harsher inflation.

The Prime Minister has allegedly "lost control" of the economy, according to opposition leader Keir Starmer, who also said she had "crashed the pound." According to analysts, Labour now has a chance to position itself as a serious challenger to the Conservatives as a result of Britain's most recent economic problems.

Consumer borrowing

People searching for alternate sources of funding should think about applying for a logbook loan secured by their car or perhaps consider pawning their unencumbered assets such as prestige, classic and vintage cars and other luxury assets such as Fine art, watches, gold, or fine gems to get them through these historically unpredictable economic times.

According to statistics, the number of logbook loans in the UK has surged by 61% since 2011. Even though they didn't have a good reputation ten years ago, they are now a reliable and regulated option for receiving extra money quickly, which can sometimes make all the difference in an emergency.

Over time, the Financial Conduct Authority became involved in the revision of logbook loans, and in 2017, safeguards such as price limitations on fees and interest were implemented. Lenders shall provide fair prior notice to borrowers of the financial and other ramifications of the agreement.

It's also worth considering that a Pawning your Luxury Assets is also a regulated loan and is non-recourse financing, so your lender will never ask for additional funds should the value of their asset drop during the term of the loan. Plus, discretion is paramount and with no credit reports undertaken, and no search marks left on the credit file, the customer's anonymity is always assured.

Contact to find out more about how our loans will help you get through these trying times.

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