As ever, the Guardian tells it better than I can:
Normally you would expect the government to co-ordinate their financial policy with the central bank, the Bank of England. They should have had the plans assesed by the office of budget responibilty.
They didn’t, and this took the financial markets by surprise. In particular the market for government bond (gilts). These are a key part of the long teem investment portfolio of major pension funds.
There was a sudden loss in confidence that that the UK government cutting taxes and paying for it by increased borrowing was a sound policy.
The Bank of England had to very quickly step in and buy bonds from its reserves to stabilise the market.
Its other key role is to control inflation to an agreed target. This is becoming more difficult and there are fears that interest rates will have to increase soon and the exchange rate is looking very poor.
Truss and her Chancellor suddenly stood up in the boat, convinced they had a simple solution without thinking through the predictable consequences and this rocked the financial system.
They have the attitude that all you have to do is be bold and implement radical Reaganite tax cutting economic policy intended to stimulate growth and everything will come right. They made no mention of how it is going to be paid for and this was noticed.
The Conservatives used to be the party of financial responsibility. That reputation is now pretty much trashed. Many Conservatives are deeply unhappy about this. Turns out they voted for another maverick as leader who thinks leadership is all about image. Truss has faked until she made it to the top of the Conservative party and they have a bad case of buyers remorse.
The UK, like many economies, faces some serious challenges after the crises created by Brexit, Covid and Putin. It requires wise leadership to steer the economy through these difficult times.
It needs a steady hand, instead Truss seems to be a gambler. She had better be lucky.
That sounds just like the Republican Party; do they work together? Or are the Koch brothers whispering in the ears of the Tories as well as the GOP?
I’m not sure the blame there lies with this new administration. It seems that some pension fund managers have got themselves into a pickle by investing in questionable derivative products which, it turns out, are vulnerable to abrupt, but not impossible, rises in gilt yields. Even though their whole job is supposed to be about avoiding taking risks with people’s pensions.
The Bank of England has had to step in to bail out these funds, but isn’t the Bank supposed to oversee them to prevent this sort of thing in the first place? And in fact some funds looked at these products, thought “not touching that with a bargepole”, and raised their concerns with the Bank.
The economy hasn’t collapsed, and everyone’s mortgage payments haven’t shot up. A lot of the reaction to this event is verging on hysteria. Back in the real world the pound has quietly made up a lot of its fall against the dollar (which by the way is surging against many currencies - check out the dollar-euro rate.)
The new government has indeed made a right mess of its first major economic announcement (I would argue that the mistakes were political and presentational as much as economic), but Britain has not suddenly regressed to “emerging economy” status.
Even the Downing Street cat isn’t having any
There are normally checks to determine the effects of budget changes before they are announced. This was not done by the Truss administration and the Bank of England was caught by surprise.
This should not have happened. The Johnson administration exasperated its own party with its lack of competence. Now this new Truss administration starts off by making a stupid mistake in the first few days. Conservative party members are understandably unimpressed with the new leadership shooting themselves in the foot.
It will allowed to pass for now, the party will be loyal at this early stage in an administration. But the budget changes were quite large and represent a big change in policy. Questions are being asked about how the government will pay for tax cuts if the interest rates rise to reduce inflation. The suspicion is that there is going to be some bad news for public sector pay and pensions. These are sure-fire vote losers.
The Bank of England is frequently caught by surprise (“transient inflation”, anyone?) so what’s new. Would the Bank have known about this pension fund liability risk even if the government had asked it?
The government does have to explain how it will pay for all this, true. But it’s interesting that by far the most costly element, the reduction of basic income tax to 19%, was not opposed by anyone. Apparently 19% income tax is now Labour policy too. Who knew? They kept that one quiet. Strangely, I have not seen anyone asking Keir Starmer how a Labour government would pay for it.
It was in Labour leader Kier Starmers keynote speech at the Labour Party conference a few days ago. A reduction in the Basic rate by 1% helps a wide range of working people. So it get the thumbs up. One dissenting voice was Andy Burnham who made the point that the money could have been better targeted on the poorest in society. They are united in objecting to the tax reductions for highest earners, who are well off.
But really, Labour are not in power and an election is a couple if years away. Goodness knows what sort of condition the economy will be in by then.
The Conservatives under Truss control the levers of the UK economy and they think tax reductions using borrowed money will produce growth.
Their gamble is that this will get growth in the economy up to 3% before the next election. It is flatlining at right now.
Truss sticks to her line in a manner that fails to convince anyone that she is in command of the situation. Normally a Prime Minister would gave developed media handling skills and know how to handle political interviews. Sadly she did not seem to get that experience as a juniour minister. Her stint as Foreign Secretary in charge of talking up the trade opportunities afforded by Brexit was lame. Not as gaff prone as Boris Johnson when he was Foreign Secretary, but nonetheless pretty pathetic.
A key issue for the Conservatives is to address the concerns over their competence under Johnson. Truss has made a particularly bad start.
Will this be like watching a car crash?
Is there any way for an election to be called earlier?
Yes, but it’s not especially likely to happen in the near future, I wouldn’t think.
The government could call one, but all the polls indicate that they’d be slaughtered, so I doubt that they will. Or the House of Commons could pass a no-confidence motion in the government, but the Tories have a large majority of seats so it wouldn’t succeed.
Edit: Sorry, first post on this platform. This was meant as a reply to DrDeth above.
Welcome! Good first post – informative and concise. 
Thanks for the welcome. I did post on the board occasionally before the software change, but it’s been years and it’s not like I was particularly well-known.
Then, welcome back!
I recognized you.
Nice to be recognised, thanks 
It is up to the Prime Minister to decide the date of the next election as long as it is before the end of the five year term.
An important consideration is that Truss was elected to take over from Johnson when he was forced out by a no confidence vote by his party. It was an internal party change of leader and so Truss has never presented policies in a party manifesto that has been tested by the UK voters in a General Election.
The policies the Conservative party was elected on three years ago….well it was a different world. The big issue at the time was Brexit. We have since had the Covid pandemic and now Putin’s invasion and the big issue is how to deal with the dire economic conditions this has created.
Truss does not have a clear mandate from the voters and if the economy goes into crisis there will be protests and calls for a General Election. She is faced with borrowing huge amounts just when interest rates need to be raised to head off inflation. Reducing that borrowing can only be done by cutting government spending, if taxes are not raised. Cutting spending means reducing government budgets for health, education and pensions. There will be protests and strikes by labour unions if they don’t get increased pay the meet the higher cost of living.
So a Prime Minister without the endorsement of winning a general election trying to administer an economic plan that is going to put the poorest under great financial pressure. It has not hit home yet but the winter energy bills, inflation and mortgages payment hikes….
Just about everything could go wrong with this - a perfect storm not seen since the 1970s?
I hope I am wrong.
I’ve heard snippets from a few interviews she’s done. She seems utterly incapable of thinking on her feet.
Well here is Liz putting her foot down:
Liz isn’t expected to go either.
The date of the next election is up to the PM and the parliamentary Conservative party (and the constitutional limit, which I believe is January 2025.) Before she took office I was anticipating the usual thing of a honeymoon period followed by a decision on whether to go for an early election, like Theresa May disastrously did in 2017.
With the absolute fuck-up that Truss has made of the first few weeks in the job, I’d guess that late 2024 is the most likely date. The only people who could change that are the 1922 committee (Conservative parliamentary power brokers), but it’s difficult to see the point of yet another party leadership election now. I’m guessing that they are now resigned to running with Liz Truss, come what may.